It’s Not All About ESG: Why Dividend Sustainability Matters in a Portfolio

When allocating to dividend-paying instruments, a company’s ability to pay actually its dividends is of the utmost concern. The WisdomTree Global Dividend Model Portfolio is a collection of exchange traded funds emphasizing dividend growth and sustainability.

Source: It’s Not All About ESG: Why Dividend Sustainability Matters in a Portfolio

“This model portfolio seeks to provide capital appreciation and high current dividend income, through a globally diversified set of WisdomTree’s dividend income oriented equity ETFs.The model strives to deliver dividend income in excess of the global benchmark of equities,” according to the issuer.

Avoiding Dividend Trouble Spots

What makes this model portfolio valuable is that WisdomTree’s dividend benchmarks toss companies that suspend dividends.

During normal times, a large-cap index will have very few, if any, dividend suspensions. Boeing’s dividend suspension in March 2020 was the first for an S&P 500 company since December 2017,” writes WisdomTree analyst Matt Wagner. ”Nineteen companies were removed from the WisdomTree U.S. LargeCap Dividend Index for dividend suspensions in 2020—the highest of any year since its inception.”

Seven of the nine ETFs featured in the model portfolio are WisdomTree products spanning domestic and international equities, including emerging markets and small caps. The recurring narrative is that yield is hard to come by nowadays, but fixed income investors still have options. One of those is looking overseas, and three ETFs do just that, while offering investors the yield options they desire.

Ex-U.S. developed market dividend payers often feature larger yields than their U.S. counterparts, an assertion proven by comparing large- and mega-cap dividend stocks from familiar dividend sectors such as consumer staples, energy, financial services, and telecommunications.

This model portfolio is also more reflective of new dividend growth in some sectors.

“Unlike in 2008, when the biggest banks were the biggest dividend payers and the epicenter of the crisis, this time around the biggest dividend-paying sector was Information Technology, a sector that has directly benefited from the COVID-19 pandemic,” adds Wagner. “Three of the four largest dividend-paying sectors—Information Technology, Health Care and Consumer Staples—had dividend growth throughout the year. Financials, the second biggest dividend-paying sector in 2019, saw dividends reduced slightly in 2020, primarily attributable to the sector’s biggest payer—Wells Fargo— trimming its dividend by 80%.”

For more on how to implement model portfolios, visit our Model Portfolio Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.