WisdomTree

U.S. Quality Dividend Growth

Fifth Consecutive Year of Double-Digit Dividend Growth

by Jeremy Schwartz, Director of Research on December 11, 2014

WisdomTree conducts the annual rebalance of its U.S. dividend Index family in December, with the annual screening date occurring on the last trading day of every November. The annual screening process provides a plethora of data about how dividends for the U.S. equity markets have changed over time and gives important information about the underlying market fundamentals. In the table below, we look at the Dividend Stream® for the WisdomTree Dividend Index, WisdomTree’s broadest and most inclusive dividend Index.

Dividends, a key gauge of the market’s underlying fundamentals, continue to set new highs with another year of double-digit growth.
 
Figure 1: WisdomTree Dividend Index (WTDI) Dividend Stream

New Record Dividend Stream: 2014 marks the fifth consecutive year of double-digit growth for the U.S. Dividend Stream. Remarkably, the cumulative decline of more than 23% from 2007 to 2009 has been erased, and 2014 marks a new high—42% above the mark set in 2007.1
 
Tech Titan Growth: Information Technology sector dividends have grown a remarkable 245% since November 30, 2007. At the prior peak, this sector constituted only 5.6% of the Dividend Stream, whereas now it constitutes more than 13.6% and is the second-largest dividend-paying sector behind Financials.
 
Financials Displayed Highest Growth: The sector grew its dividends more than 21% since last year’s screening and has averaged more than 20% growth over the past five years. Even after the impressive growth since the 2009 lows, the sector’s dividends are still more than 17% below their 2007 highs, and it’s the only sector whose Dividend Stream remains below its 2007 highs.
 
Consumer Discretionary Grew close to 20%: The sector grew close to 20% since last year’s screening and has grown its dividends over 100% on a cumulative basis since 2007, ranking second after Information Technology. The sector’s dividends fell more than 17% during the recession, lagging only the Financials and Materials sectors during the crisis, but Consumer Discretionary has clearly rebounded much more quickly than those two sectors. This sector is also in focus this year as one that may stand to benefit the most from recent declines in oil prices—as consumers have more discretionary income they can spend on other items.

Number of Dividend Payers Also Increases

The November 30, 2014, rebalance screening makes it clear that the Dividend Stream has grown significantly, and one reason for that growth is the increased number of companies paying dividends. The table below helps illustrate how these new dividend payers are continuing to be a very significant part of the Russell 3000 Index market cap.
 
Figure 2: WisdomTree Dividend Index (WTDI) Historical Trends

Over 100 Additions: There were over 100 additions to WTDI this year, and they contributed $7.2 billion to the Dividend Stream. This year’s rebalance saw more than 100 additions for the second year in a row, but the total number of constituents is still below its prerecession highs. Two of the largest additions were General Motors and Intercontinental Exchange Inc., contributing $1.9 billion and $293 million, respectively.2
 
A Large Majority of Constituents Exhibited Dividend Stream Growth: Excluding the additions, over 98% of the current constituents remained in the Index, meaning 98% of the constituents have indicated they will continue to pay dividends. Of the constituents remaining in the Index, approximately 88% have increased their indicated Dividend Stream since last year’s screening. Household names like Verizon Communications, Bank of America, General Electric, Wells Fargo and Microsoft were some of the leaders in the indicated Dividend Stream growth3.

Conclusion

WisdomTree interprets this year’s aggregate dividend growth of more than 12% as a very positive indicator of underlying market fundamentals. Even more impressive is the fact that this was the fifth consecutive year of double-digit dividend growth. We take comfort in the fact that the overall valuations of dividend stocks have not become overly stretched as a result of this strong dividend growth and believe future dividend growth could provide a notable foundation for potential future gains.
 
 
 
 

1Each calendar year mentioned refers to the November 30 screening date for that year.
2General Motors’ and Intercontinental Exchange Inc. projected rebalance weights in the WisdomTree Dividend Index are 0.47% and 0.07%, respectively.
3The projected rebalance weights of the mentioned companies in the WisdomTree Dividend Index are as follows: Verizon Communications, 2.22%; Bank of America, 0.51%; General Electric, 2.15%; Wells Fargo, 1.77%; Microsoft, 2.49%.

Important Risks Related to this Article

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

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