This account is pending registration confirmation. Please click on the link within the confirmation email previously sent you to complete registration.
Need a new registration confirmation email? Click here
Stocks Under $10 with 50-100% upside potential - 14 days FREE!

New Fund Brings Dividend Growth In Small Caps

NEW YORK (TheStreet) -- The latest wave of income oriented ETFs focuses on companies with track records for dividend growth. In the last few weeks the market has seen the EG Shares Emerging Markets Dividend Growth ETF (EMDG) and the WisdomTree US Dividend Growth Fund (DGRW)start trading. Right on the heels of DGRW WisdomTree then launched the US Small Cap Dividend Growth Fund (DGRS).

There are several ways to assemble dividend growers and in the case of DGRS there is more to it than something simple like 10 years of dividend increases. The constituents of the WisdomTree Small Cap Dividend Index are scored for long term earnings growth expectations and returns on equity and assets for the last three years. The top 50% based on this process are then dividend weighted based on expected dividends in the coming year to populate DGRS.

The yield for DRGS' underlying index is 1.98% which after accounting for the 0.38% expense ratio could put the yield at 1.60% compared to 1.4% for the iShares Russell 2000 ETF (IWM). As a brand new fund DGRS has not paid any dividends yet, the 1.60% is just an indication.

That may not seem like a high yield but that isn't necessarily the point with dividend growth investing. The growth aspect in this context has to do with growth in dividend such that the payout grows at a rate greater than inflation. People subscribing to this method of investing expect to live off of dividend stream created by their portfolio in retirement and if the dividends keep growing then they will never have to touch their principle. There is plenty of research to support the validity of this strategy including at the WisdomTree web site.

An important point to consider is whether or not the process underlying DGRS results in a fund that looks different than the benchmark IWM. If the two were essentially the same fund then it wouldn't make sense to pay the extra 18 basis points in fees to own DGRS.

At the sector level the funds look much different. The largest sector in DGRS is industrials at 25% followed by consumer discretionary 24%, materials 14% and technology at 13%. IWM has 24% in financials. Discretionary, tech and industrials all at weighted at 14% and health care at 12%. Those differences in sector makeup should be enough that the funds are not identical.

1 of 2

Select the service that is right for you!

COMPARE ALL SERVICES
Action Alerts PLUS
Try it NOW

Jim Cramer and Stephanie Link actively manage a real portfolio and reveal their money management tactics while giving advanced notice before every trade.

Product Features:
  • $2.5+ million portfolio
  • Large-cap and dividend focus
  • Intraday trade alerts from Cramer
  • Weekly roundups
TheStreet Quant Ratings
Try it NOW
Only $49.95/yr

Access the tool that DOMINATES the Russell 2000 and the S&P 500.

Product Features:
  • Buy, hold, or sell recommendations for over 4,300 stocks
  • Unlimited research reports on your favorite stocks
  • A custom stock screener
  • Upgrade/downgrade alerts
Stocks Under $10
Try it NOW

David Peltier, uncovers low dollar stocks with extraordinary upside potential that are flying under Wall Street's radar.

Product Features:
  • Model portfolio
  • Stocks trading below $10
  • Intraday trade alerts
  • Weekly roundups
Dividend Stock Advisor
Try it NOW

Jim Cramer's protege, David Peltier, identifies the best of breed dividend stocks that will pay a reliable AND significant income stream.

Product Features:
  • Diversified model portfolio of dividend stocks
  • Alerts when market news affect the portfolio
  • Bi-weekly updates with exact steps to take - BUY, HOLD, SELL
Real Money Pro
Try it NOW

All of Real Money, plus 15 more of Wall Street's sharpest minds delivering actionable trading ideas, a comprehensive look at the market, and fundamental and technical analysis.

Product Features:
  • Real Money + Doug Kass Plus 15 more Wall Street Pros
  • Intraday commentary & news
  • Ultra-actionable trading ideas
Options Profits
Try it NOW

Our options trading pros provide daily market commentary and over 100 monthly option trading ideas and strategies to help you become a well-seasoned trader.

Product Features:
  • 100+ monthly options trading ideas
  • Actionable options commentary & news
  • Real-time trading community
  • Options TV
To begin commenting right away, you can log in below using your Disqus, Facebook, Twitter, OpenID or Yahoo login credentials. Alternatively, you can post a comment as a "guest" just by entering an email address. Your use of the commenting tool is subject to multiple terms of service/use and privacy policies - see here for more details.
Submit an article to us!
DOW 17,079.57 -42.44 -0.25%
S&P 500 1,996.74 -3.38 -0.17%
NASDAQ 4,557.6950 -11.9260 -0.26%

Brokerage Partners

Rates from Bankrate.com

  • Mortgage
  • Credit Cards
  • Auto

Free Newsletters from TheStreet

My Subscriptions:

After the Bell

Before the Bell

Booyah! Newsletter

Midday Bell

TheStreet Top 10 Stories

Winners & Losers

Register for Newsletters
Top Rated Stocks Top Rated Funds Top Rated ETFs