Analyzing Our Top 20 U.S. Dividend Growth Stocks

Executive Vice President, Global Head of Research

In a recent blog, we outlined how we’ve recently developed an Index methodology designed to focus on dividend growth, but not by solely looking at a history of past dividend increases. We focus on a few factors that we believe have the potential to raise the probability that qualifying Index constituents will grow their future dividend payments. To reiterate, those were:      • Earnings growth estimates      • Return on equity (ROE)      • Return on assets (ROA) While there is truly no way to look into the future, we believe this to be a fundamentally oriented approach that differentiates itself from being dependent on dividend history as the only metric by which to judge future dividend growth potential. In this blog, we examine the top 20 qualifying companies and discuss whether these firms have dividend histories that would allow them to qualify for potential inclusion in the NASDAQ US Dividend Achievers Select Index (“Achievers Select”), meaning that they’ve increased their dividends for 10 consecutive years. The Achievers Select is the market capitalization-weighted benchmark for our index.  
The Top 20 Constituents for the WisdomTree U.S. Dividend Growth Index
The Top 20 Constituents for the WisdomTree U.S. Dividend Growth Index      • Of the top 20 constituents of the WisdomTree U.S. Dividend Growth Index, nine are current constituents of      the Achievers Select.      • Of the 11 excluded firms, many would not be eligible until around 2020, even if they continue to increase      their dividends each year. These excluded firms tended to have higher average long-term earnings growth      expectations, higher average ROE and even higher average trailing 12-month dividend yields.      • The Apple Effect: Apple has become the largest dividend payer in the United States1 and is the largest      holding in the WisdomTree U.S. Dividend Growth Index. Apple is not eligible to be included in the Achievers      Select until 2023.      • Higher Earnings Growth Expectations: One of the key summary statistics in this top 20 table are the      earnings growth averages of companies included in the Achievers Select versus the averages of those      excluded. Notably, of the 20 constituents of the WisdomTree U.S. Dividend Growth Index that are included in      the Achievers Select, the average earnings growth expectation was 9.46%. That compares to the average of      companies not included in Achievers Select (due to their more limited dividend history) of 12.0%. Conclusion There is little question that many of the firms comprised in this list are strong companies with brands that are essentially household names across the U.S. While there is no way to know whether any of them will raise their dividends in the future, we would question the exclusion of such firms as Apple, Microsoft, Altria, UPS and Boeing if the sole reason for doing so is a lack of 10 consecutive years of dividend increases. Each has a return on equity over 30%—with Altria and Boeing being substantially higher. While we can’t state whether those figures will directly impact future dividend growth or future returns, we believe that they indicate significant profitability and merit further consideration.     View Jeremy Schwartz discuss dividends (Video) Read our Dividend Growth series here.     1This is based on Apple’s indicated dividends per share as of its latest earnings announcement dated 4/23/2013.

Important Risks Related to this Article

Dividends are not guaranteed and a company’s future abilities to pay dividends may be limited. A company currently paying dividends may cease paying dividends at any time.


About the Contributor
Executive Vice President, Global Head of Research
Jeremy Schwartz has served as our Executive Vice President, Global Head of Research since November 2018 and leads WisdomTree’s investment strategy team in the construction of WisdomTree’s equity indexes, quantitative active strategies and multi-asset model portfolios. Mr. Schwartz joined WisdomTree in May 2005 as a Senior Analyst, adding to his responsibilities in February 2007 as Deputy Director of Research and thereafter, from October 2008 to October 2018, as Director of Research. Prior to joining WisdomTree, he was head research assistant for Professor Jeremy Siegel and helped with the research and writing of Stocks for the Long Run and The Future for Investors. Mr. Schwartz also is co-author of the Financial Analysts Journal paper, What Happened to the Original Stocks in the S&P 500? He received his B.S. in Economics from The Wharton School of the University of Pennsylvania and hosts the Wharton Business Radio program Behind the Markets on SiriusXM 132. Mr. Schwartz is also a member of the CFA Society of Philadelphia.