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Quality Dividend Growth
A Roadmap for U.S. Dividend Indexes
08/21/2017
Jeff Weniger, CFA , Asset Allocation Strategist


Not all U.S. dividend equity mandates are created equal. Some focus on absolute yields on offer today, while others screen for stocks based on past experience in paying them. Still others tie in a dividend-screening process that mixes and matches various smart beta factor concepts. Figure 1 shows two WisdomTree U.S. dividend equity Indexes, along with four common competitor indexes.

 

Figure 1:  U.S. Dividend-Focused Equity Indexes

U.S. Dividend-Focused Equity Indexes

 

Now the Hard Part

 

The WisdomTree U.S. High Dividend Index CAD demonstrates a combination of yields that are higher than the broad market, and a screening methodology that focuses on fundamentals. Figure 2 shows how each of the six indexes compares on income, valuation, profitability and growth metrics.

 

Figure 2:  How the Players Line Up

how the players line up

 

The WisdomTree U.S. High Dividend Index CAD ranks second on dividend yield (3.77%), while also having the 2nd lowest P/E ratio. Its price-to-book ratio slots into the same rank, while its estimated earnings growth is higher than that of all the other five dividend indexes listed in figure 1.

 

Head-to-Head with the Aristocrats

 

Compare those metrics with an index like the S&P High Yield Dividend Aristocrats CAD-Hedged Index. The Aristocrats’ dividend yield is more than a point lower than the WisdomTree U.S. High Dividend Index CAD, while its P/E ratio is 19.9—higher than all the indexes in the table. Additionally, the Aristocrats Index is expected to grow earnings by only 4.1% in the next year, a lower rate than any of the other indexes.

 

Compare this to the WisdomTree U.S. Quality Dividend Growth Index CAD: With an ROE of 27.3%, we built it with a laser focus on the quality factor. It shows up as being expensive on a price-to-book basis, and its P/E ratio is in the middle of the pack, but its profitability measures (ROE and ROA) are at the top of the grid. That means the Index is nearly twice as profitable as the S&P 500 (which has an ROE of 14.0%), while its ROA (8.0%) is more than double that of the S&P 500 (2.9%). The WisdomTree Index’s P/E multiple is also lower than the S&P’s (18.4 vs. 18.8). 

 

WisdomTree U.S. Quality Dividend Growth CAD vs. NASDAQ US Dividend Achievers Select

 

In a head-to-head matchup with the NASDAQ US Dividend Achievers Select Index, the WisdomTree U.S. Quality Dividend Growth Index CAD comes out on top on four of the six metrics in figure 2. The Dividend Achievers has a lower yield, higher P/E, lower return on equity and lower return on assets than the WisdomTree Index.   

 

Low Volatility, High Dividend…With a Catch

 

Look at the S&P 500 Low Volatility High Dividend Index. That one has a catchy name, a high yield (4.12%) and a lower P/E than the broad market (17.9). So far, so good. The problem is that it also has low ROEs and low ROAs

 

For investors who are intrigued by our approach to U.S. dividend equities, the WisdomTree U.S. High Dividend Index ETF (HID) and the WisdomTree U.S. Quality Dividend Growth Index ETF (DGR) may prove interesting.

 

 


Important Risks Related to this Article

Quality Dividend Growth, Dividends, Dividend Growth


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WisdomTree Asset Management Canada, Inc.

161 Bay Street, 27th Floor

Toronto, ON. M5J 2S1

canadafeedback@wisdomtree.com

866-893-TREE (8733)

 

By registering, I certify that I have read, understood and agree to be bound by the WisdomTree Terms of Use. I understand that my personal information will be treated in accordance with the WisdomTree Privacy Policy available here.