WisdomTree High Dividend's (DHS) dividend-focused strategy tracks a high-yielding benchmark of large-cap value stocks. This fund's index selects the highest-yielding 30% of dividend-paying stocks. To minimize the impact of high-yielding but high-risk companies, DHS weights constituents in proportion to the total dollar amount of dividends paid. Companies that pay out the largest amount of dividends tend to be large-cap companies with less volatility than a typical high-yield stock. The fund's search for high yield could tilt it to distressed firms with unsustainable dividends, especially before a downturn. Another drawback is the fund's 0.38% expense ratio, which is high compared with other dividend exchange-traded funds. These factors make DHS best suited as a satellite holding for investors looking for current income.
The fund's value exposure has been deeper than most large-value funds, although it has drifted over time. Prior to the financial crisis, the fund had a deep-value tilt and a 54% weighting in financial and real estate stocks compared with just 38% in the typical large-value fund. Many of these stocks were forced to cut their dividends during the crisis. Currently, the fund's value tilt is more modest, and it gives an underweighting to financials relative to the Russell 1000 Value Index. The fund will naturally shift toward the highest-yielding stocks and sectors at rebalance. Currently, telecommunications, utilities, and consumer staples stocks offer the most attractive yields, and this fund has an overweighting in all three sectors.
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Michael Rawson does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.