Depend on DGRW for Dividends, Outperformance Potential
This article was originally published on ETFTrends.com.
It’s often said that for investors to garner the true benefits of dividends. That style of investing is best deployed over long time horizons and with the use of payout reinvestment.
There’s something to that notion as, by some estimates, dividends have accounted for approximately 40% of total equity returns over the past 100 years. Alone, that’s a compelling reason to consider an exchange traded fund such as the WisdomTree U.S. Quality Dividend Growth Fund (DGRW). However, there’s more to the story and those other factors further highlight the allure of the $9.57 billion DGRW.
In Morgan Stanley’s 2023 Dividend Playbook released Wednesday, the bank highlighted the ability of dividend-paying stocks to perform less poorly than non-dividend counterparts in rough market environments such as those seen in 2000, 2008, 2015, and 2020. DGRW debuted in May 2013, so it’s been put to the test in multiple turbulent market settings.
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Past performance isn’t a guarantee of future returns, but it’s worth noting that over the past three years, DGRW outperformed both the S&P 500 and the largest domestic dividend ETF, doing so with less annualized volatility than those assets.
Examining DGRW Benefits
Astute advisors and investors are inclined to want to know why dividend stocks offer steadiness and solid long-term performance potential. As Morgan Stanley observes, some of that positivity stems from “the guaranteed positive return from the dividend payment.”
The bank adds that dividend stocks often exhibit a “quality bias.” This trait serves as one of the bedrocks of the DGRW thesis. To identify companies that can service current dividend obligations and boost payouts going forward, the WisdomTree ETF focuses on traits such as return on assets (ROA) and return on equity (ROE), which act as tells regarding a company’s dividend potency.
Alone, dividends aren’t a guarantee of strong long-term performance, but “the cohort of companies that make a long-term decision to pay an annually recurring dividend [is what would lead] to longer-term appreciation, inclusion in large cap indexes (survivorship bias), and lower volatility during market downturns,” observed Morgan Stanley.
The bank highlighted a preference for technology sector payouts. This is a positive for DGRW investors because that sector accounts for 29.27% of the ETF’s roster. Conversely, Morgan Stanley cautioned about consumer cyclical companies getting too carried away with dividends. Consumer discretionary is merely the fifth-largest sector exposure in DGRW at a weight of 9.20%.
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