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A Dynamo Among Dividend ETFs

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Among dividend exchange traded funds, the WisdomTree U.S. LargeCap Dividend Fund (NYSE: DLN) is one of the seasoned veterans, having been around more than 13 years. That gives investors a lengthy, battle-tested track record to assess.

What Happened

DLN, which provides exposure to domestic, large-cap dividend payers, follows the dividend-weighted WisdomTree U.S. LargeCap Dividend Index. The fund has returned 186% since inception, easily beating the 150% returned by the S&P 500 Value Index over the same period.

Over that span, DLN has been less volatile than S&P 500 Value Index with a maximum drawdown that was 350 basis points below the value benchmark's.

Why It's Important

Importantly, DLN is more of a dividend growth strategy than it is a high-yield play. Its yield of 2.6% is above those found on major U.S. equity benchmarks, but not so high as to imply risks to the underlying components' payouts.

“Not all dividend strategies are alike. Some prioritize dividend growth, while others prioritize current income,” said Morningstar in a recent note. “Those that aggressively chase yield are often riskier than their growth-oriented counterparts, as many of their holdings offer high yields because of falling share prices often resulting from deteriorating fundamentals.”

The utilities and real estate sectors, two traditional high dividend destinations, combine for just 10% of DLN's weight. Conversely, the fund devotes 18% of its weight to technology stocks.

“Although it does not employ any screen for dividend sustainability, it effectively keeps risk in check with a combination of broad diversification and fundamental weighting,” according to Morningstar. “The efficacy of this approach is evidenced by the fund’s below-market five-year beta of 0.92.”

What's Next

Eight of DLN's top 10 holdings are members of the Dow Jones Industrial Average with Apple (NASDAQ: AAPL) and Microsoft (NASDAQ: MSFT) combining for 7.64% of the fund's weight. Those are more recent dividend growers, but several of DLN's top 10 holdings have dividend increase streaks spanning decades.

“DLN is broadly diversified with about 300 holdings, which mitigates stock-specific risk,” said Morningstar. “The fund weights its holdings based on expected dividend payments, which skews the portfolio toward larger names, as larger companies with robust balance sheets are more likely to maintain and grow their dividends.”

The research firm has a Bronze rating on DLN.

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