Home Trading ETFs Earn Income And Play Defense With DHS

Earn Income And Play Defense With DHS

by Vidya
Mike Zaccardi, CFA, CMT profile picture


Torsten Asmus/iStock via Getty Images

It has been a tough year for most areas of the investable market. Stocks, bonds, and crypto are all off big in 2022, and just recently, commodities and energy equities are feeling some selling pressure. Few factors have worked, but there’s one niche that is holding its own: Dividend-paying companies. In fact, the S&P cash payment was a new record in the second quarter at $16.63 per share, or $140.56 billion, according to S&P Global. Performance-wise, WisdomTree notes that the high dividend factor, through May, is up an impressive 10.14%.

The High Dividend Factor Is Best Among the “Factor Zoo” in 2022

The High Dividend Factor Is Best Among the

WisdomTree

Since 1978, dividends and reinvested dividends have contributed 69% of the U.S. stock market’s return, helping a $10,000 investment grow to over $1.5 million, per the fund issuer. Owning blue-chip, high dividend companies has been a reliable way to earn strong total returns over the decades. That’s no truer than today as investors seek strong free cash flow firms that reward shareholders with quarterly payouts.

Dividends & Reinvestment Are More Important Than Price Appreciation Since 1978

Dividends & Reinvestment Are More Important Than Price Appreciation Since 1978

WisdomTree

WisdomTree U.S. High Dividend Fund (NYSEARCA:DHS) “seeks to track the investment results of high-dividend-yielding companies in the U.S. equity market”, according to the fund’s website. Investors access large-cap value shares that feature both growth and income aspects through this ETF. With a low expense ratio of just 0.38%, DHS has a portfolio dividend yield of 3.92%, well above the S&P 500’s yield of 1.62%. Moreover, with an average forward P/E ratio of 11.5x, the fund is more attractively valued than the broad market.

Digging into the portfolio, you’ll see that many of this year’s momentum names are top holdings. The two integrated oil majors, Exxon Mobil (XOM) and Chevron (CVX), make up nearly 13% of the ETF. DHS is also somewhat defensive, which investors might seek in this volatile environment. Health Care, Energy, and Consumer Staples comprise almost 60% of the portfolio. Utilities is also a big overweight at 12% as of June 28. You will not find much interest-rate-sensitive Tech and Discretionary; those two sectors are just 4% of DHS.

Energy And Defensive Stocks Top The Portfolio List

Energy & Defensive Stocks Top the Portfolio List

WisdomTree

The Technical Take

Turning to an analysis of performance and levels investors should watch. First, DHS sports massive relative strength versus the S&P 500 over the last seven months. It also beats Vanguard High Dividend ETF (VYM) and iShares Core High Dividend ETF (HDV) year-to-date. While shares have pulled back on a relative basis in the last month, this looks like a bullish consolidation to me.

DHS Relative Strength Since 4Q 2021, Bullish Consolidation Recently

DHS Relative Strength Since 4Q 2021, Bullish Consolidation Recently

Stockcharts.com

The fund’s absolute performance is solid since late last year. I also see significant support in the $76 to $78 area – note the early 2020 high at $77.61 that has held so far. This is a key range for DHS to maintain going forward. Moreover, I like what I see in volume trends. With ETFs, you want to be sure liquidity is good and improving. More shares are being traded on the ETF this year versus last, evidence of active trading each day which can bring down bid/ask spreads.

DHS: Multi-Year Support In-Play. Better Volume in 2022

DHS: Multi-Year Support In-Play. Better Volume in 2022.

Stockcharts.com

The Bottom Line

DHS is an ideal domestic high dividend equity ETF for investors seeking exposure to strong payout companies. The fund’s defensive tilt has provided robust nominal and relative returns during what will end up being one of the worst first-half performances from the S&P 500 on record. Better volume trends and support on the chart are positive technical features of this low-cost ETF, too.



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