WisdomTree large-cap dividend ETF
So Cisco plans to pay a dividend, making good on the tech company's CEO John Chambers' promise that it would do so before he retired.
So Cisco plans to pay a dividend, making good on the tech company’s CEO John Chambers’ promise that it would do so before he retired. In an era when there is a lot of cash built up on S&P 500 company balance sheets, dividends, M&A, and buybacks are coming back into vogue.
The WisdomTree LargeCap Dividend Fund (DLN, $42.20 at the close of business on Sept. 14, 2010) carries Standard & Poor’s highest ETF ranking of Overweight and specifically invests in U.S. large-cap dividend payers.
Like many of today’s equity ETFs, WisdomTree LargeCap Dividend Fund is aimed at providing investment returns that are generally similar to those of the stocks in an equity index. In the case of DLN, WisdomTree says that this ETF seeks investment results that closely correspond to the price and yield performance, before fees and expenses, of the WisdomTree LargeCap Dividend Index. That index, according to WisdomTree, measures the performance of the large-cap segment of U.S. dividend payers. The index is dividend weighted annually to reflect the proportionate shares of share of aggregate cash dividends that each component company is projected to pay in the year ahead.
S&P Equity Research believes it is important to assess various performance, risk. and cost considerations when analyzing and comparing equity ETFs, including assessments of the underlying holdings and their likely prospects. S&P incorporates its well-established STARS ranking system for stocks as one of the inputs to the ETF ranking. An ETF that owns more 5-STARS (strong buy) stocks is more likely to get a higher overall ranking that one that owns a lot of 1-STARS (strong sell) issues. S&P’s unique ranking methodology for equity ETFs incorporates these considerations in establishing ETF rankings.
DLN recently had a market capitalization of about $428 million, and average daily trading volume of approximately 54,000 shares. Also, in the evolving world of ETFs, DLN has been around for a while, having debuted in June 2006.
DLN is quite diversified, recently having about 295 holdings. DLN’s top ten stock holdings represent only 29% of the total, led by AT&T (T *****) at about 5%, and Exxon Mobil (XOM ****) at about 4%.
Recently, DLN’s largest sector weighting (about 20%) was in consumer staples, one of only two sectors that S&P’s U.S. Equity Strategy Group advises overweighting. (The other is technology.) S&P believes that in view of concern about the strength of economic recoveries, the defensive, high-yielding consumer staples sector has potential for outperformance.
Consumer staples stocks owned by DLN recently included top ten holdings Procter & Gamble (PG ****), Philip Morris International (PM ****), and Wal-Mart Stores (WMT *****).
But DLN is well diversified throughout all 10 sectors of the economy. The health care and industrials sectors each recently represented about 12% of holdings, while energy accounted for 11%. As of mid-September, each of these sectors received a marketweight ranking from S&P U.S. Equity Strategy. The six remaining economic sectors each accounted for between 4% and 9% of DLN’s holdings.
Drilling deeper, the top five industries to which DLN has exposure are pharmaceuticals (11.2%), integrated oil & gas (9.5%), integrated telecommunication services (8.7%), tobacco (5.2%), and electric utilities (4.3%).
Although some of the companies owned by DLN have a significant international presence, nearly all of the holdings (about 99%) are U.S.-based.
S&P’s overweight ranking for this ETF is based, in part, on a relatively favorable view of DLN’s holdings from S&P equity analysts. S&P equity analysts had a strong buy or a buy ranking on what were recently eight of DLN’s ten largest holdings, and a Hold opinion on the other two. Also, S&P quantitative Fair Value system gave DLN a relatively neutral holdings-based appraisal, and S&P’s Technical Evaluation for DLN was favorable.
Meanwhile, S&P Equity’s favorable overall ranking on DLN was helped by risk and cost profiles that were relatively favorable, when compared to those of other equity ETFs ranked by S&P. In the risk category, DLN’s good score incorporated above-average rankings related to the S&P Quality Ranking (a measurement of historic growth and stability for earnings and dividends), and the S&P Credit Rating (based on companies in which DLN had an ownership interest), plus a relatively low standard deviation, which measures the volatility of the ETF’s price. However, the S&P Risk Assessment from S&P equity analysts was relatively negative.
In the cost category, DLN had a favorable gross expense ratio (0.28%), while the Price-to-NAV assessment was viewed as more neutral, and the Bid/Ask Spread was unfavorable.
As of September 14, DLN recently had a dividend yield of 2.9%, and had provided a 12-month total return of about 10.5%. However, DLN was vulnerable to the sharp market sell-off between late 2007 and early 2009, which contributed to a three-year annualized average loss of 8.3%. Also, DLN’s future performance could suffer if there is an unexpectedly large increase in the federal tax rate(s) for dividends.
For more details on the S&P ETF research, visit S&P’s MarketScope Advisor, at www.marketscope.com.
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