Should You Be Buying Dividend Stocks?

Considering a passive ETF that’s also sort of active [View in browser]( [The Juice Logo] BROUGHT TO YOU BY: [Logo]( Proprietary Data Insights Top Large Cap Growth ETF Searches This Month Rank Ticker Name Searches #1 [SPY]( SPDR S&P 500 ETF 252,029 #2 [QQQ]( Invesco QQQ ETF 130,852 #3 [VOO]( Vanguard S&P 500 ETF 40,203 #4 [VTI]( Vanguard Total Stock Market ETF 16,367 #5 [DIA]( SPDR Dow Jones Industrial Average ETF 13,064 #ad [Beyond Traditional Investments: Embrace Diversity]( Brought to you by [Stansberry Research]( [A.I. is a Tidal Wave - Here’s What to Buy]( [ Stansberry Research - A.I. is a Tidal Wave - Here’s What to Buy]( Microsoft’s CEO Satya Nadella says A.I. is a “tidal wave.” One with even more potential than the internet. This is a huge claim. The internet generated more wealth than any other innovation in history - creating hundreds of thousands of new millionaires in America alone. Now A.I. could do the same. 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An increased interest in dividend-focused ETFs. With inflation coming in hot yesterday, the Fed might not lower rates as soon as previously thought. This could help keep high-yield savings account, CD and Treasury interest rates high. In this environment, dividend stocks tend to be less attractive. If you can earn 5% or better in a cash account, why take on the risk inherent in equities, even if they’re relatively conservative dividend payers? That said, we do think dividend payers are coming and will continue to come back. Not only because of rates eventually going lower, but because of a potential cool-off (not to mention profit taking) in some of the market’s tech high flyers. We don’t want to overstate that last sentence. But it’s something to keep an eye on. We’re not alone in our thinking. There’s the increased search interest in dividend ETFs. For example, the 10th most searched large cap growth ETF is the Vanguard Dividend Appreciation ETF (VIG) with 5,406 searches. In 15th position is the iShares Core Dividend Growth ETF (DGRO) with 3,688 searches followed by #23, the WisdomTree U.S. Dividend Growth Fund (DGRW) with 1,580 looks. We keep up with Wisdom Tree funds here at The Juice because they produce interesting research. In a recent blog post, Wisdom Tree noted that DGRW “has roughly kept up with QQQ in the same period, indicating a shift in the primary drivers of U.S. equity market performance.” It’s a little bit of a stretch to say DGRW “has roughly kept up with QQQ.” Wisdom Tree measured the period from the beginning of the year to March 22, 2024 to make this statement. To their credit, they acknowledge that such a short time period isn’t indicative of much. If you look, YTD, as of Wednesday, QQQ is up about 8.7% compared to a 5.7% return for DGRW. No doubt, the Wisdom Tree blog is about marketing their funds. But it also has valuable info. And it can teach a bit about distinguishing between passive and active ETFs. Sometimes it’s straightforward, [as we explain here]( and at the links within that recent Juice. Other times, there’s some nuance. Technically, DGRW is a passive ETF, however it passively tracks the WisdomTree U.S. Quality Dividend Growth Index, devised by Wisdom Tree, using a set of criteria determined by Wisdom Tree: The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three year historical averages for return on equity and return on assets. The 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. Nothing wrong with any of this. But you catch The Juice’s drift. This type of ETF that uses an in-house index sort of skirts the line between passive and active. Anyhow, Wisdom Tree has been predicting a rotation into dividend stocks for a while. It illustrates that conviction by noting why DGRW has been competitive with QQQ: … the two biggest drivers of positive attribution for DGRW relative to QQQ are the 1) exclusion of Tesla, since it is not a dividend-paying company and 2) under-weight allocation to Apple, since DGRW’s index is weighted by cash dividends and not market capitalization. Intel, even though it does pay a dividend, was also excluded from DGRW, and this helped relative performance. Elly Lilly and Abbvie were included from DGRW but not QQQ, and this also helped DGRW's relative performance. On the other hand, the three biggest drivers of negative attribution for DGRW relative to QQQ were 1) an under-weight position in Nvidia, 2) an under-weight position in Meta Platforms, even though WisdomTree did run a special rebalance in March 2024 based on Meta initiating a dividend payment, and 3) the exclusion of Amazon.com as a non-dividend-payer. While we find all of that pertinent and even fascinating, we bolded the most important parts. They speak to both the increased interest in and performance of dividend payers and the idea that this ETF is about as active as passive ETF can get. If you’re tracking, say, an S&P 500 index, you’re not going to be able to underweight Apple (AAPL) and exclude Intel (INTC). The Bottom Line: We don’t really have an opinion on DGRW. With a relatively low 0.28% [expense ratio](, we don’t think you’d be crazy to own it. But we also like other dividend-paying ETFs as much or better. We’ll get into them next week. The point here is that it might be time to start paying closer attention to dividend stocks. And, never judge an ETF by its cover and categorization. Sometimes you have to take a deeper look under the hood. 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