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Payouts Power This Small-Cap ETF


In what can be considered a positive sign for the risk-on nature of the current rally in stocks, 23 U.S.-focused small-cap exchange traded funds hit all-time highs yesterday.

Proving that dividends are difference makers with small-cap ETFs, several of those all-time small stock funds were dividend ETFs, including the WisdomTree U.S. SmallCap Dividend Growth Fund (DGRS) .

DGRS, the small-cap equivalent of the successful WisdomTree U.S. Dividend Growth Fund (DGRW) , has climbed 3.9% year-to-date, but the ETF’s momentum is accelerating as highlighted by Wednesday’s move to an all-time high and a three-month gain of 8.2%.

DGRS tracks the WisdomTree U.S. SmallCap Dividend Growth Index, which is weighed by fundamental factors such as growth expectations, return on equity and return on assets, according to WisdomTree. Consumer discretionary and financial services are the ETF’s second- and third-largest sector weights, respectively. That is an important point because those two sectors are expected to be the only groups that post double-digit dividend growth this year. [Slow Q1 for Dividend Increases]

“While S&P Capital IQ has analysis on a smaller percentage of DGRS’s assets, most of the stocks seem fairly valued and have average S&P Capital IQ Quality Rankings. However, the ETF is trading with bullish technical patters. DGRS has a 0.38% net expense ratio,” said S&P Capital IQ.

The research firm has an overweight rating on DGRS.

Speaking of dividend growth, that is exactly what small-caps have been delivering and that bodes well for investors willing to take a long-term view of DGRS.

Although small-cap indexes remain at the low end of the dividend yield totem pole, more than half of IJR’s holdings are dividend payers and there is room for steady payout growth as “182 payers have a dividend rate less than 50% of their 12 month net GAAP income, with 235 being less than 75%,” according to S&P Dow Jones Indices. [Small-Cap Dividends Climb]

“Starting with recent growth in SmallCap payers, and the history of payers to continue to pay and increase, SmallCaps issues appear to be trending up, and if the trend continues, eventually, the index level characterizes will change,” said S&P Dow Jones Indices senior index analyst Howard Silverblatt in a note.

DGRS pays a monthly dividend and can be traded commission-free on the Schwab ETF OneSource platform.

WisdomTree U.S SmallCap Dividend Growth Fund



Todd Shriber owns shares of DGRS.