Dividend investing is usually thought of as defensive investing. Of course, that also means it pays to be defensive, but investors can also play offense with the right dividend exchange traded funds. For example, the WisdomTree Total Dividend Fund (NYSE: DTD) is up 2.7 percent this year, including dividends paid.
DTD offers investors solid exposure to sectors that have recently been and are expected to be dividend growth leaders in the future. Translation: DTD has comparatively high weights to consumer discretionary, financial services and technology relative to other diversified dividend funds. Those groups combine for about 40 percent of the ETF's weight.
DTD follows the WisdomTree Dividend Index (WTDI), which is dividend weighted based on “the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year, based on the most recently declared dividend per share,” according to WisdomTree.
With more than $487 million in assets under management and approaching its 10th birthday, it's hard to call DTD a “hidden gem” among dividend ETFs, but “overlooked” may be a more appropriate descriptor. That should not be seen as a negative. After all, investors that poured into the largest U.S. dividend ETF over the past three year probably think the 34.5 percent returned by that ETF is pretty good. Except for the fact that DTD beat that ETF by 420 basis points over that period.
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“Dividend-paying stocks may not seem to be a way to go on offense, but not every dividend-paying stock finds itself in the Utilities and Telecommunication Services sectors. In particular, we believe there are relatively lower-yielding dividend payers with significant growth potential. These companies may be best positioned in an environment of economic growth and even rising interest rates, especially if they feature relatively low debt,” said WisdomTree in a new note.
The standard “approach to dividend-paying stocks focuses in many cases on stocks with relatively higher dividend yields, placing more emphasis on the defensive sectors: Utilities, Telecommunication Services, Health Care and Consumer Staples. In times of volatility, in many cases characterized by falling interest rates, these types of strategies may deliver outperformance,” adds WisdomTree.
Staples, utilities and telecom stocks combine for over a quarter of DTD's weight.
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