IDEXF - IQDG: Finding Dividend Growth In Quality And Forward Earnings

2023-11-19 09:56:29 ET

Summary

• WisdomTree International Quality Dividend Growth Fund selects ex-North America dividend stocks with quality and expected earnings growth characteristics.
• The fund is well-diversified across countries, sectors, and holdings, with a focus on Europe.
• IQDG has outperformed at least four close competitors in 2023 and has the best 5-year dividend growth rate in its group.

This article series aims at evaluating ETFs (exchange-traded funds) regarding the relative past performance of their strategies and metrics of their current portfolios. Reviews with updated data are posted when necessary.

IQDG strategy and portfolio

WisdomTree International Quality Dividend Growth Fund ( IQDG ) started investing operations on 04/07/2016 and tracks the WisdomTree International Quality Dividend Growth Index. It has 249 holdings, a 12-month distribution yield of 1.82% and a total expense ratio of 0.42%. Distributions are paid quarterly.

As described in the prospectus by WisdomTree , the underlying index “ is comprised of the top 300 companies from the WisdomTree International Equity Index with the best combined rank of growth and quality factors. The growth factor ranking is based on long-term earnings growth expectations, while the quality factor ranking is based on three year historical averages for return on equity and return on assets. Companies are weighted in the Index based on annual cash dividends paid ”. The index excludes Canada and the U.S.

An important point about the strategy: it selects dividend stocks with quality and expected earnings growth characteristics, not growing dividends in the past. It is a forward-looking approach.

The fund invests mostly in Europe (about 81% of asset value) and in large companies (83%). The top three countries are the U.K. (17.9%), Japan (15%) and Switzerland (13.9%). France and the Netherlands follow at about 10%, and other countries are below 7%. Hong Kong weighs 0.48%, so direct exposure to geopolitical risks related to China is negligible. The next chart lists the top 10 countries, representing an aggregate weight of 93.6%.

The portfolio is well-diversified across sectors. The top three sectors are consumer discretionary (20.5%), healthcare (19%) and industrials (18.3%). Then, come technology (11.3%), materials (10.2%) and consumer staples (8.7%). Other sectors are below 5%. The fund almost ignores energy and real estate, both below 1% of assets.

The fund has 249 holdings, but it is quite concentrated in the top 10 names, which represent 33.2% of asset value. However, risks related to individual companies are moderate. The heaviest one is Bernard Arnault’s luxury group LVMH, with a weigh of 4.7%.

Past performance compared to competitors

The next table compares characteristics of IQDG and four non-hedged international dividend growth ETFs:

• Invesco International Dividend Achievers ETF ( PID ), reviewed here ,
• Vanguard International Dividend Appreciation ETF ( VIGI ), reviewed here ,
• WisdomTree Global ex-U.S. Quality Dividend Growth ( DNL ), reviewed here ,
• iShares International Dividend Growth ETF ( IGRO ), reviewed here .

I add iShares MSCI EAFE ETF ( EFA ) as a global ex-US equity benchmark.

IQDG shows the best 5-year dividend growth rate in this group. On the downside, the fee is on the expensive side and the yield is below-par.

The next chart plots total returns from 6/1/2016.

DNL is the best performer by a significant margin and the rest of the pack is quite in a narrow range. However, IQDG is leading in 2023 to date, almost tie with the MSCI EAFE benchmark ((EFA)).

The annual sum of distributions has increased from $0.52 to $1.28 per share between 2017 and 2022. It is a 146% total growth, while the cumulative inflation has been about 20% in the same time (based on CPI). IQDG has been excellent regarding distribution growth, even if the strategy doesn’t look for dividend growth stocks.

Takeaway

WisdomTree International Quality Dividend Growth Fund selects ex-North America dividend stocks with quality and expected earnings growth characteristics. Europe represents over 80% of assets. The fund is well-diversified across countries, sectors and holdings. Performance since inception is average, but IQDG has outperformed at least four close competitors in 2023, and it also beats them regarding the 5-year dividend growth rate.

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