A deep-value ETF for income seekers

This exchange-traded fund could serve as a supporting player to boost U.S.-dollar dividend yields.

Michael Rawson, CFA 6 October, 2015 | 5:00PM
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Dividend-paying stocks have historically outperformed the market. In the United States, between 1927 and 2014, stocks that pay a dividend have beaten the total market by about 0.7 percentage points annualized. Stocks in the highest-yielding 30% of the market have done even better, outperforming by about 1.5 percentage points annualized.

 WisdomTree High Dividend (DHS), which trades in the U.S., offers a way to take advantage of that potential outperformance. It tracks the WisdomTree High Dividend Index, which selects the highest-yielding 30% from among all dividend-paying U.S. stocks that meet minimum size and liquidity requirements.

High-yielding stocks can be risky. The highest-yielding stocks have had greater volatility than the broader market because some of these stocks are distressed and may offer an attractive yield as compensation for risk. Dividend yields are quoted based on past payouts, and a stock that appears to offer an attractive yield may be forced to cut its dividend in the future. Unlike a bond coupon payment, which is a contractual obligation, a stock dividend is paid at the discretion of company management. Companies with high dividend payout ratios may be investing less in the growth of their businesses, and future earnings growth and stock returns might suffer.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
AT&T Inc27.51 USD-0.22Rating
Verizon Communications Inc54.44 USD-0.24Rating

About Author

Michael Rawson, CFA

Michael Rawson, CFA  Michael Rawson, CFA, is an analyst covering equity strategies on Morningstar’s manager research team.

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