D Is for Defense (and Dividends)


Key Takeaways

  • Dividend equities have historically shown resilience during market downturns and offer the potential for quicker recovery after losing less than other non-dividend benchmarks.
  • Looking for higher dividend yields leads to significant sector tilts that become important when there is a shift from a bull market to a correction and then to a bear market.
  • April 2024 has been a reminder that defensive strategies have their place, and dividends can be an important characteristic of a more defensive equity allocation.

Equity market corrections always feel unexpected. As we sit here in April 2024, we have seen the CBOE Volatility Index (VIX) increase from a level of about 12 to about 19 (Figure 1).

Figure 1: CBOE Volatility Index (VIX) over the Past Year

WisdomTree has been managing dividend-focused equity strategies since June 2006, nearly 20 years. Here are some notable observations:

  • Equity investors from the global financial crisis of 2008–09 have been treated to—for the most part—historically low interest rates and incredible performance of growth stocks. If you want to understand why we talk about the stocks of the Magnificent 71 comprising something like 30% of the S&P 500 Index2, you have to understand this period. Growth stocks saw a lot of multiple expansion in a lower-interest-rate environment, and the general investor was more excited about the possibilities for appreciation than for regular dividend payments.
  • Dividend equities have historically earned their stripes not when times are good and the VIX is low; they earn their stripes when times are bad and they go down less, giving themselves a chance to recover more quickly than standard benchmarks.

April 2024 is giving us at least initial indications that a market correction could be in store. Since the Magnificent 7 and the growth style have received so much attention in the past 18 months, we wanted to remind investors where to look for more defensive equity orientations.

The Dividend Continuum

All dividend-paying firms are not equal. On one end of the spectrum, think about a firm in the Utilities sector. Utilities are a regulated industry, and these companies can operate only in a highly specified and expected manner. With this low expected growth of fundamentals such as sales, cash flows and earnings, there is a lower current valuation. Another way to think about this is a higher dividend yield. On the other end of the spectrum, think about a Communication Services or Information Technology company. Meta Platforms declared a dividend in 2024,3 and it is a good, concrete example to have in mind. This firm may deliver strong growth in sales, cash flows and earnings, and this potential for strong growth leads to a higher valuation—and a lower dividend yield.

These differences become important when there is a shift from a bull market to a correction and then to a bear market.

At WisdomTree, the dividend continuum is apparent in U.S. equities across three strategies:

Now, we know the dividend continuum, and we know that April 2024 has been a tougher month for performance of equities. Is the actual performance playing out the way we might predict in this paradigm?

April 2024 Performance

  • DHS was the best performer, down the least, followed by DLN and then DGRW—but the grouping was fairly close together. A truer test could be a more protracted period of equity volatility.

Figure 2a: Standardized Performance as of March 31, 2024

For the most recent month-end and standardized performance and to download the respective Fund prospectuses, click the relevant ticker: DGRW, DLN and DHS.

Figure 2b: April 2024

For the most recent month-end and standardized performance and to download the respective Fund prospectuses, click the relevant ticker: DGRW, DLN and DHS.

If we instead look year-to-date, we can recognize that, yes, April has been a tougher month, but most of 2024 leading up to April was pretty good.

  • DGRW largely led the way in the upward-trending market for the first quarter of 2024. DLN kept pace fairly well. DHS lagged significantly.
  • DHS even lagged the Russell 1000 Value and S&P 500 Value Indexes during the up-market period.

Figure 3: Year-to-Date 2024


For the most recent month-end and standardized performance and to download the respective Fund prospectuses, click the relevant ticker: DGRW, DLN and DHS.

Sector Rotation Coming?

If there is a longer-lasting sector rotation, the following compares the sector composition of various dividend strategies that could help implement a more defensive posture:

  • DHS: Utilities are nearly 15%, Consumer Staples approaches 15% and Energy stands out at nearly 20%. This Energy sector tilt could help hedge some of the inflationary risk of higher energy prices.
  • DGRW: It has barely any exposure to Utilities and almost 30% exposure to Information Technology.
  • DLN: It has less concentration in any sector and more moderate sector tilts for a value strategy.

Figure 4: Sector Exposure

Consistently Higher Dividend Yield

With indexes, you can get a sense of consistent attributes of a given strategy and methodology.

DHS is tracking an Index that annually resets to the 30% of highest-yielding dividend payers. It will be difficult for any strategy without such a focus to deliver a higher dividend yield. 

In Figure 5, we see the significant dividend-yield advantage measured across time—a significant period.

Figure 5: Dividend Yield Over Time

Conclusion: Bringing the Recent Past Forward to Help Understand What Could Come Next

2022 was a year when the technology sector hit a downturn and dividend and value strategies stood out. 2023 brought AI and tech leadership back in force once again, and much of the start of 2024 continued that movement. April serves as a reminder that defensive strategies often focus on dividends, and there are a number of good implementation ideas depending on your conviction of the rotation.



1 The term Magnificent 7 gained prominence in 2023 and refers to Microsoft, Apple, Amazon.com, Alphabet, Meta Platforms, Nvidia and Tesla.

2 Sources: WisdomTree, FactSet, with data as of 4/19/24.

3 “Meta Reports Fourth Quarter and Full Year 2023 Results; Initiates Quarterly Dividend,” press release, 2/1/24.

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Important Risks Related to this Article

There are risks associated with investing, including possible loss of principal. Funds focusing their investments on certain sectors may be more vulnerable to any single economic or regulatory development. This may result in greater share price volatility. Dividends are not guaranteed, and a company currently paying dividends may cease paying dividends at any time. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.

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About the Contributor

Global Head of Research

Christopher Gannatti began at WisdomTree as a Research Analyst in December 2010, working directly with Jeremy Schwartz, CFA®, Director of Research. In January of 2014, he was promoted to Associate Director of Research where he was responsible to lead different groups of analysts and strategists within the broader Research team at WisdomTree. In February of 2018, Christopher was promoted to Head of Research, Europe, where he was based out of WisdomTree’s London office and was responsible for the full WisdomTree research effort within the European market, as well as supporting the UCITs platform globally. In November 2021, Christopher was promoted to Global Head of Research, now responsible for numerous communications on investment strategy globally, particularly in the thematic equity space. Christopher came to WisdomTree from Lord Abbett, where he worked for four and a half years as a Regional Consultant. He received his MBA in Quantitative Finance, Accounting, and Economics from NYU’s Stern School of Business in 2010, and he received his bachelor’s degree from Colgate University in Economics in 2006. Christopher is a holder of the Chartered Financial Analyst Designation.