A Dividend Dynamo Ascends To New Highs

Although stocks surged Monday, just 14 exchange-traded funds hit all-time highs. Indicating that conservative, lower beta fare is still in style, six of the seven sector ETFs that hit new highs Monday were consumer staples, telecom or utilities funds.

Of the seven ETFs in the all-time high club, five were dividend ETFs. That quintet includes the WisdomTree High Dividend Fund DHS. The $1.12 billion DHS recently celebrated its tenth anniversary. Length of track record is often important to many advisors and investors when evaluating ETFs and mutual funds, but so is the productivity of a given fund over its lifespan.

Dominating DHS

DHS has been remarkably productive and rewarding for investors over the past decade. The ETF tracks the WisdomTree High Dividend Index, which is one of “11 of WisdomTree’s 12 dividend-weighted Indexes beat their comparable broad based cap-weighted index over the past 10 years in the U.S. and in the developed world,” according to WisdomTree.

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A significant driver of DHS's success is that the ETF, like other WisdomTree dividend ETFs, breaks from the norms of the dividend ETF universe. Those norms being either weighting by yield or focusing on backward-looking dividend increase streaks. Rather, DHS's underlying index “is dividend weighted annually to reflect 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.

Allocations And Holdings

The ETF's largest sector weight is 17.8 percent to consumer staples with another 11.1 percent devoted to utilities names, so DHS gets income investors to a place many currently want to be: the intersection of low volatility and yield. DHS has a distribution yield of nearly 2.60 percent, or nearly 100 basis points above Monday's closing yield on 10-year Treasurys.

Top 10 holdings in DHS include venerable dividend payers such as AT&T Inc. T, Exxon Mobil Corporation XOM, Procter & Gamble Co PG and The Coca-Cola Co KO. Each of those stocks are dividend aristocrats, indicating that although DHS's methodology does not obsess over dividend increase streaks, there is plenty of dependable dividend growth to be had with this ETF.

Of course, risk-adjusted returns are what is really important to investors. Over the past three years, DHS is up 38.6 percent, including dividends paid, with annualized volatility of 11.9 percent. By comparison, Vanguard's two domestic dividend ETFs have each under-performed DHS while both have been slightly more volatile than the WisdomTree offering.