WisdomTree DTD: A Balanced Dividend ETF (NYSEARCA:DTD)

This dividend ETF article series aims at evaluating products regarding the relative past performance of their strategies and quality metrics of their current portfolios. As holdings and their weights change over time, I may update reviews, usually no more than once a year.

DTD strategy and portfolio

The WisdomTree Total U.S. Dividend Fund (DTD) has been tracking the WisdomTree U.S. Dividend Index since 06/16/2006. It has 642 holdings, a distribution yield of 2.05% and a total expense ratio of 0.28%.

As described in the prospectus,

The Index measures the performance of U.S. companies, listed on a U.S. stock exchange, that pay regular cash dividends and meet other liquidity and capitalization requirements established by WisdomTree. The index is dividend weighted at the annual reconstitution in December to reflect the proportionate share of the aggregate cash dividends each component company is projected to pay in the coming year.

DTD invests exclusively in U.S. based companies, mostly in the large cap segment (75% of asset value). It is significantly cheaper than the S&P 500 (SPY) regarding usual valuation ratios, reported in the table below.

The heaviest sector is financials (16.8%), followed by technology (15.1%), healthcare (14.4%) and consumer staples (14.3%). Other sectors are below 9%. Compared to SPY, the fund overweights financials, consumer staples, energy, real estate and utilities. It underweights technology, communication services and consumer discretionary. As a result, the portfolio is more balanced across sectors than the S&P 500.

The top 10 holdings, listed below with weights and some fundamental ratios, represent 25.4% of asset value. The largest holding weighs 4%, so the risk related to individual stocks is moderate.

Historical performance

Since inception in June 2006, DTD has underperformed SPY and the popular Vanguard dividend growth ETF VIG in total return and risk-adjusted performance (Sharpe ratio).

Data calculated with Portfolio123

The next chart plots the equity value of $100 invested in DTD and SPY since DTD inception.

DTD was almost on par with SPY in its first 10 years, then it started underperforming in 2017.

In previous articles, I have shown how three factors may help cut the risk in a dividend portfolio: Return on Assets, Piotroski F-score, and Altman Z-score.

The next table compares DTD since inception with a subset of the S&P 500: stocks with above-average dividend yield and ROA, good Altman Z-score and Piotroski F-score, and a sustainable payout ratio. It is rebalanced annually to make it comparable with a passive index.

Past performance is not a guarantee of future returns. Data Source: Portfolio123

The dividend quality subset beats DTD by 3 percentage points in annualized total return and shows a much lower risk in drawdown. However, the fund’s performance is real, and the subset is hypothetical. My core portfolio holds 14 stocks selected in this subset (more info at the end of this post).

Scanning DTD with quality metrics

DTD holds more than 600 stocks, but the top 300 represent almost 90% of the portfolio. I have scanned them with my quality metrics, considering that risky stocks are companies with at least two of the following red flags: bad Piotroski score, negative ROA, unsustainable payout ratio, bad or dubious Altman Z-score, excluding financials and real estate where these metrics are less relevant. With these assumptions, 24 of the top 300 holdings are risky and they weigh only 4% of asset value, which is a good point.

Based on my calculation, DTD’s weighted Altman Z-score and Piotroski F-score are similar to SPY’s. ROA is a bit better. These metrics point to a portfolio quality slightly superior to the benchmark.

Takeaway

DTD is a pure dividend ETF without any quality filter, well balanced in financials, technology, healthcare and consumer staples. These top 4 sectors weigh about 60% of asset value. It is cheaper than SPY regarding valuation metrics, with a note of caution: averages may be biased by the heavy weight of financials, where ratios are usually cheap and unreliable. Quality measured by the weighted average return on assets is a bit superior to the benchmark. Moreover, risky stocks represent a small percentage of asset value. DTD has outperformed a number of other dividend equity ETFs. Quality, performance and risk metrics are much better than for high-yield ETFs. However, it has been lagging SPY and VIG (review here) since 2017. DTD has a 4-star rating at Morningstar. For transparency, a dividend-oriented part of my equity investments is split between a passive ETF allocation (DTD is not part of it) and my actively managed Stability portfolio (14 stocks), disclosed and updated in Quantitative Risk & Value.