Fans of dividends, of which many clients are, were likely pleasantly surprised last month Facebook parent Meta Platforms (NASDAQ: META) announced its first-ever quarterly payout.
It was headline-grabbing news because many companies of Meta’s ilk – looking at you Alphabet (NASDAQ: GOOG) and Amazon (NASDAQ: AMZN) – are loathe to pay dividends and advisors know as much. There’s more to the story.
At 50 cents a share per quarter, Meta is devoting $5 billion annually to its dividend. Perhaps to the surprise of many dividend aficionados, that ranks the company among the top 30 in the U.S. in terms of dividends paid in dollar terms.
Plus there’s the compelling historical data confirming that dividend initiators offer strong potential for out-performance. On that note, Meta’s stock has gained about $100 since the dividend was announced. Impressive work in the span of six weeks. For advisors that rely on exchange traded funds to access payout stocks, it’s worth pondering where Meta shares will first land. Some educated guesses follow.
Some Familiar Dividend ETFs Could Own Meta
The WisdomTree U.S. Dividend Index (WTDI), WisdomTree U.S. LargeCap Dividend Index (WTLDI), WisdomTree U.S. Quality Dividend Growth Index (WTDGI) and the WisdomTree Global Developed Quality Dividend Growth Index (WTDDG) rebalance on Friday, March 15 and it’s possible all four of those gauges will soon include Meta.
That’s relevant because the ETFs tracking the domestic gauges have over $16 billion in combined assets under management. The potential inclusion of Meta in those funds also highlights some of the associated with ETFs’ methodology.
“WTDGI, WTDGNUHP and WTDDG are all part of the WisdomTree Quality Dividend Growth suite. These strategies aim to invest in dividend-paying companies whose profitability and growth prospects indicate higher-than-market dividend growth,” notes Alejandro Satiel, head of indexes at WisdomTree.
Meta entering those gauges and potentially the ETFs tracking them is relevant to advisors and clients for another reason. As noted above, dividend initiators can outperform rivals, but they also offer the possibility of more rapid payout growth.
Apple (NASDAQ: AAPL) is a primary example of that trend. The stock announced its dividend about 12 years ago and has been a fixture in WTDGI. During that time, Apple’s dividend growth has easily outpaced that of the S&P 500.
Where Meta Won’t Turn Up
There are scores of dividend ETFs on the market today with plenty hailing from issuers beloved by advisors and clients, but it will be awhile before those products feature shares of Meta. In this case, “awhile” means “years.”
The reason for that is simple. Many of the largest dividend ETFs on the market today adhere to indexes that mandate a stock have a minimum payout increase streak measured in years. That’s reason some of those funds were slow to add Apple and Microsoft (NASDAQ: MSFT) and why Meta won’t be on their rosters on anytime soon.
Conversely, the aforementioned WisdomTree gauges use more forward-looking metrics. In the case of WTDGI, return on equity (ROE) and return on assets (ROA) are part of the equation, and that allows for a dividend initiator such as Meta to join the fold soon after a new payout is announced.
“WTDGI uses a composite score combining a company’s quality (ROE and ROA) and estimated earnings growth to rank and select securities. Meta ranks in the top 20 out of 550+ securities in scope on this composite measure with its solid quality number and an 18% estimated earnings growth over the next few years,” concludes Satiel.