This article was co-authored by WisdomTree
As every sailor knows, you can hope for calm seas, but you must be prepared for rough waters. The same holds true for investors. Times when the market is comfortably rising are obviously the most enjoyable, yet every now and then, stocks hit an unpleasant wave. And if your portfolio is akin to a ship, periods of volatility test its sturdiness. Quality materials can prevent a ship from capsizing—and quality stocks may just play the same role for your investments.
Quality Companies: What Are They, Exactly?
Many seemingly vague terms get bandied about in the world of finance, often without being defined. ‘Quality’ is one of them. At some level, every investor may think all their stocks are quality companies. But the word has an important, specific meaning, which distinguishes some stocks from others.
In a nutshell, a quality company is one with better cash flow and earnings than other firms, as well as a stronger balance sheet. Quality companies also tend to have less leverage (i.e., debt relative to their assets). What’s more, their dividend is often more sustainable than competitors, and they are usually able to maintain pricing power (and hence their profit margins) when the economy is in distress.
These kinds of companies aren’t momentum stocks supported by little else than blue-sky projections and market euphoria. Like a good friend, they won’t abandon you when the going gets tough. If anything, that’s when their value can truly shine through.
A Quality Fund Turns 10
For 10 years, the Wisdom Tree U.S. Quality Dividend Growth Fund (Ticker: DGRW) has offered investors exposure to quality large-cap stocks. DGRW is guided by the philosophy that by focusing on quality companies, a portfolio can reap the rewards of both capital growth and consistent dividend income growth.
A decade in, the results speak for themselves. DGRW has bested the S&P 500 for the 1-, 3-, 5-, and 10-year time periods as of 5/31/23 and has turned in this performance with lower volatility than the index. More gains with less risk. What’s not to like about that?
Consider DGRW When Volatility Spikes
Your portfolio may benefit from owning quality companies in different market environments. But where quality can really shine is when markets are especially volatile. Times of market stress can separate companies that will stand the test of time vs. the high-flyers that crash and burn. And because stocks do tend to fall when the market takes a swoon, a bout of volatility may offer investors the chance to buy quality stocks at even better prices.
Disclosures
Refer to WisdomTree.com/investments/etfs/equity/dgrw for the fund’s most recent performance and other important information.
Investors should carefully consider the investment objectives, risks, charges and expenses of the Funds before investing. To obtain a prospectus containing this and other important information, please call 866.909.9473, or visit WisdomTree.com to view or download a prospectus. Investors should read the prospectus carefully before investing.
There are risks associated with investing, including possible loss of principal. Funds focusing their investments on certain sectors increase their vulnerability to any single economic or regulatory development. This may result in greater share price volatility. Dividends are not guaranteed, and a company currently paying dividends may cease paying dividends at any time. Please read the Fund’s prospectus for specific details regarding the Fund’s risk profile.
WisdomTree Funds are distributed by Foreside Fund Services, LLC.
Statements concerning financial market trends are based on current market conditions, which will fluctuate.
© Copyright 2023. All rights reserved. Nasdaq is a registered trademark of Nasdaq, Inc. The information contained above is provided for informational and educational purposes only, and nothing contained herein should be construed as investment advice, either on behalf of a particular financial product or an overall investment strategy. Neither Nasdaq, Inc. nor any of its affiliates makes any recommendation to buy or sell any financial product or any representation about the financial condition of any company or fund. Statements regarding Nasdaq’s proprietary indexes are not guarantees of future performance. Actual results may differ materially from those expressed or implied. Past performance is not indicative of future results. Investors should undertake their own due diligence and carefully evaluate companies before investing. ADVICE FROM A SECURITIES PROFESSIONAL IS STRONGLY ADVISED.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
Image and article originally from www.nasdaq.com. Read the original article here.