With the high attention investors are devoting to mega-cap growth stocks, it’s not surprising that dividends are taking a backseat.
That shouldn’t be the case because dividend payers perform well over the long-term and data confirm payouts increased in the second quarter – both positive signs for exchange traded funds such as the WisdomTree U.S. Quality Dividend Growth Fund (DGRW ). DGRW is performing admirably this year while delivering less annualized volatility than the S&P 500.
The ETF is one for equity income investors to consider because payout growth data are encouraging. In the April through June period, domestic dividends increased by $20.4 billion, a 108% year-over-year gain, according to S&P Dow Jones Indices. Alone, that’s an encouraging data point for dividend growth ETFs such as DGRW. However, there are other potential catalysts for the fund.
DGRW has Fresh Dividend Payers
History shows that new dividend payers often outperform rivals that don’t initiate payouts. That’s meaningful when considering DGRW. The ETF’s index methodology allows it to add dividend initiators more rapidly than rival funds that focus on past dividend action.
“Alphabet’s initiation accounted for $9.3 billion of the Q2 2024 increase, as Q1 2024’s Brookings, Meta Platforms and Salesforce initiations accounted for $7.2 billion,” according to S&P.
As of July 3, shares of Google parent Alphabet (GOOG) and Facebook parent Meta Platforms (META) combine for about 4.3% of DGRW’s roster, meaning the ETF is among the dividend funds with the largest allocations to those rookie dividend payers.
On a related note, DGRW doesn’t rely on dividend increase streak history as part of its weighting methodology. The fund’s combined weight to the technology and communication services sectors is north of 36%. This is comparatively large relative to other dividend ETFs. Four of the ETF’s top five components hail from the tech sector.
DGRW Members May Boost Payouts
With Alphabet and Meta now classified as dividend payers, other mega-cap growth firms that don’t pay dividends could follow suit. Likewise, existing technology or communication services members of the DGRW portfolio may boost payouts.
“While the gains without the initiations are still seen as setting a record S&P 500 dividend payment for 2024, their forward cash commitment to dividends will significantly increase the payout and give investors and non-paying Boards something to think about,” noted Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices.
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