Income Grows at WisdomTree

05/20/2015 9:00 am EST

Focus: ETFs

Mark Salzinger

Editor and Publisher, The No-Load Fund Investor

This month we examine two dividend-oriented exchange-traded funds; investors should consider these products from WisdomTree, notes Mark Salzinger, editor of The Investor's ETF Report.

WisdomTree Large Cap Dividend (DLN) was one of that firm’s first offerings and WisdomTree US Dividend Growth (DGRW) is one of its newest.

DLN is one of WisdomTree’s largest ETFs by assets, with more than $2 billion under management. It invests in the 300 largest stocks by market cap in the WisdomTree Dividend Index of US dividend-paying companies.

Those stocks are then weighted in the portfolio according to their expected total cash dividend over the next year, based on their most recently declared per-share dividend.

Stocks whose cash payouts make up a proportionally larger share of the aggregate cash dividends of all the components in the index get a proportionally heavier weighting.

DGRW is nearly two years old and recently had about $472 million in assets. Like DLN, it invests in 300 stocks.

However, its 300 stocks are chosen from those dividend-paying stocks that have a market capitalization of at least $2 billion and score highest on growth and quality factors.

Like DLN, stocks are weighted according to their proportionate share of all the dividends paid by companies in the index.

Technology is the single largest sector allocation in both ETFs, making up about 20% of DGRW and 15% of DLN. Both also have important allocations to consumer staples (13% for DGRW, 14% for DLN).

Beyond those similarities, their sector allocations are markedly different. Financials are the second-largest sector in DLN with 14% of the portfolio, but they make up less than 5% of DGRW, the smallest allocation it has to any sector.

Utilities and telecom, traditionally hailed as income generators, make up more than 11% of DLN combined, but they are absent from DGRW owing to their generally slow growth and limited profitability.

DLN recently yielded 2.6%, which is not a particularly high absolute yield but a strong one relative to the S&P 500 (1.9%). DGRW’s recent yield was comparable to that of the S&P 500.

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