Value investing is one of the oldest and most popular equity strategies, mastered by legendary investors like Warren Buffett and Benjamin Graham and embraced by countless professional money managers and individual investors. The rise of the ETF industry has presented investors in pursuit of superior dividend yields dozens of options, each offering a unique twist on value investing strategies.
While some investors pursue value strategies regardless of the economic environment, others view dividend paying equities as the first level of safe haven investing. When mild signs of economic turmoil emerge, investors tend to gravitate towards stocks that provide a meaningful current return in lieu of those the offer potential for significant growth and capital appreciation. If more troubling signs emerge, assets tend to move further down the risk continuum into bonds and precious metals. Regardless of their specific goals, dividend hungry ETF investors have plenty of funds to choose from [see Actionable ETF Trading Idea].
Wisdom Tree Dividend ETFs
While the majority of exchange-traded equity products utilize market cap weighting methodologies, several other weighting strategies have become popular among investors as well. In addition to earnings weighting, revenue weighting, and equal weighting methodologies, WisdomTree offers a number of funds that employ dividend weighting techniques to determine fund holdings and allocations to individual securities.
The LargeCap Dividend Fund (DLN), for example, is based on the WisdomTree Large Cap Dividend Index which measures the performance of the large capitalization segment of the U.S. dividend-paying market. The index is dividend weighted 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. As such, the fund will generally include only companies that pay cash dividends, and will give the biggest weighting to those stocks that make the dividend payout.
In addition to large cap domestic equities, WisdomTree offers dividend-weighted ETFs focusing on domestic small and mid caps, diversified international equities of all sizes (DOL, DIM, DLS), Japan (DXJ and DFJ), emerging markets (DGS), and the Middle East (GULF).
Just as various fashion styles come in and out of favor, the effectiveness of various investment strategies will inevitably ebb and flow. Last year was the year of the mid caps and growth investing, as these groups of equities outperformed their peers as stock markets staged impressive rallies after hitting bear market lows in March. As equity markets rebounded, dividend paying equities lost a bit of their luster, and dividend-weighted ETFs lagged behind their market cap-weighted and earnings-weighted peers.
While WisdomTree has the most complete line of ETFs designed to offer exposure to dividend-paying companies, there are more than a dozen funds from other issuers that offer similar exposure.
Guggenheim Dividend ETFs
Guggenheim offers several ETFs designed to deliver meaningful current returns to investors, including both pure equity funds and products that invest in multiple asset classes. These include:
Multi-Asset Income ETF (CVY) tracks an index designed to select a diversified group of securities with the potential to outperform the Dow Jones U.S. Select Dividend Index. The Index is comprised of approximately 125 to 150 securities selected from a universe of domestic and international companies, including U.S.-listed common stocks, ADRs paying dividends, REITs, MLPs, closed-end funds and traditional preferred stocks.
International Multi-Asset Income ETF (HGI) is similar to CVY, but invests primarily in global companies and has minimal exposure to U.S. securities. The largest weightings are given to the UK, Canada, and France. HGI also invests in multiple emerging economies, including Mexico and Brazil.
PowerShares Dividend ETFs
PowerShares offers three ETFs designed to offer exposure to dividend paying companies of all sizes and nationalities.
Dividend Achievers Portfolio (PFM) is linked to the Broad Dividend Achiever Index, a benchmark that is designed to identify a diversified group of dividend paying companies that have increased their annual dividend for ten or more fiscal years. Companies meeting this requirement include several mega-cap blue chips, such as Wal-Mart, Johnson & Johnson, Exxon Mobil, AT&T, General Electric, and IBM.