U.S. Quality Dividend Growth: Rebalance Summary

The rebalance is a reminder that a dividend-growth strategy is not just a yield screen. Here, the selection process starts with a broad investable universe, then progressively narrows toward companies that currently pay cash dividends and meet profitability, coverage and quality tests. For ETF investors, the key question is not simply which stocks qualify, but which rules decide what stays out.

One useful change is the tighter top-250 selection combined with broader growth inputs. By blending forward earnings expectations with trailing sales and earnings growth, the methodology can reduce reliance on a single estimate set. That matters because dividend strategies can otherwise become too dependent on one forecasting variable, which may be unstable across cycles.

The final weighting step also deserves attention. Weighting by dividend stream can produce meaningful exposure to firms that generate large aggregate cash payouts, but the added 6% cap is there to keep a single name from dominating the portfolio. For long-term allocators, that balance between dividend capacity and concentration control is central to how the fund behaves relative to both value and core equity benchmarks.

Another portfolio-planning angle is sector and style drift. A rebalance can shift exposure materially even when the strategy label stays the same, especially when larger names enter or leave the final basket. Investors using dividend equity ETFs as an income sleeve or a core equity tilt should watch whether the fund still matches their intended role, particularly around technology, staples and health care exposure.

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The rebalance of the WisdomTree U.S. Quality Dividend Growth Index (“the Index”) became effective at the close of trading on Wednesday, December 10. This post outlines recent methodology enhancements, key before-and-after changes and how the strategy is positioned as we head into 2026. The Investment Process The Index follows a clear, rules-based investment process. The funnel chart below illustrates how the starting universe of more than 3,000 securities is narrowed to 200 final constituents. Investment Process: Number of Securities at Each Stage Source: WisdomTree, as of 11/28/25. You cannot invest directly in an index. Investible Universe WisdomTree constructs its indexes from the bottom up, rather than starting with a benchmark such as the S&P 500 or Russell 1000. The investible universe is defined using criteria including country of exchange listing, market capitalization and liquidity requirements. At this year’s rebalance, the universe included 3,458 securities—slightly broader than the Russell 3000. Dividend Universe Of the 3,458 securities, approximately 40% currently pay regular cash dividends. A key differentiator of WisdomTree’s approach is that eligibility requires current dividend payments—not a long historical record of dividend growth, which many traditional dividend strategies emphasize. The five largest companies by market capitalization excluded at this stage were Amazon, Tesla, Berkshire Hathaway, Netflix and Palantir. By contrast, five of the largest companies to initiate dividends within the past 24 months were Alphabet, Meta, Salesforce, Booking Holdings and GE Vernova. WisdomTree U.S. Dividend Index The WisdomTree U.S. Dividend Index serves as the parent index for WisdomTree’s domestic dividend strategies. Of the 1,348 dividend-paying companies, 1,205 remained after applying the Composite Risk Screen (CRS), which removed 143 names. The CRS is designed to reduce exposure to dividend “value traps” by screening for:

• profitability (within industry groups),
• risk-adjusted momentum, and
• dividend yield (excluding the riskiest, highest-yielding names).

Starting Universe for Quality Dividend Growth The Quality Dividend Growth Index focuses on mid- and large-cap companies. Securities with market capitalizations below $2 billion, as well as those included in the WisdomTree U.S. SmallCap Dividend Index, are excluded. This screen removed 599 companies, cutting the universe by roughly half. Post-Dividend Coverage Ratio Screen An additional filter is applied to help avoid companies with unsustainable dividends. Firms with negative dividend coverage ratios—where earnings per share are less than dividends per share—are excluded. At this year’s rebalance, this screen removed 69 companies. Top 250 Composite Score Two key methodology updates were implemented this year:

• The selection universe was reduced from 300 to 250 companies.
• The growth score was broadened to include 50% forward analyst earnings growth and 50% trailing five-year sales and earnings growth (previously based solely on estimated earnings growth).

From 537 eligible companies, the Index selects the 250 highest-scoring based on:

• 50% profitability (three-year ROE and ROA), and
• 50% growth.

Final Index Construction A further enhancement excludes the 50 smallest companies by weight after the top 250 are selected. The remaining constituents are then scaled to 100%. Historically, this “bottom tail” represented only about 3% of total index weight. Removing these positions improves liquidity and investability without materially changing index exposure. This rebalance also introduced a new U.S. Dividend Index Committee. The Committee serves as a governance and validation layer, ensuring the rules-based methodology is implemented correctly and comprehensively. Rebalance Weighting After selecting 200 companies, constituents are weighted by Dividend Stream^®—the total cash dividends paid. Microsoft currently pays the largest dividend in the U.S., totaling $27 billion. Of the $371.8 billion in aggregate dividends across the Index, Microsoft’s contribution translates into a 7.3% weight. To manage concentration risk, the Index Committee capped individual holdings at 6%. Additional adjustments were made to manage tracking error relative to core, value and dividend-growth benchmarks while preserving valuation and dividend-growth discipline. 2025 Rebalance: Top 10 Holdings Source: WisdomTree, as of 11/28/25. You cannot invest directly in an index. Single-Stock Changes The largest individual weight changes at the rebalance were:

• Largest increase: Coca-Cola (+2.7%)
• Largest decrease: Philip Morris (–2.3%)

Source: WisdomTree, as of 11/28/25. You cannot invest directly in an index. Given the strong performance of the “Magnificent 7” and their growing weight in the S&P 500, relative exposure is increasingly important. Post-rebalance, the Index holds approximately 25% in this group—around 10% underweight versus the S&P 500. Sector Changes Four sectors experienced notable shifts: Increases

• Information Technology (+2.6%): Driven by the addition of Broadcom (+2.5%) and higher weights in NVIDIA and Oracle.
• Health Care (+3.3%): Driven by increased weights in AbbVie, Johnson & Johnson and UnitedHealth Group.

Decreases

• Industrials (–5.1%): Reductions in Union Pacific, Lockheed Martin and Honeywell.
• Consumer Staples (–5.1%): Driven by reductions in Philip Morris, PepsiCo and Walmart.