Even as growth stocks have soared this year as the bull market rallied, many investors are buying seemingly unexciting, payout-rich dividend stocks. Income-oriented equities such Abbvie Inc. (ABBV), Broadcom Ltd. (AVGO), SL Green Realty Corp. (SLG), Regions Financial Corp. (RF), Phillips 66 (PSX), Marathon Petroleum Corp. (MPC), T. Rowe Price Group Inc. (TROW), PNC Financial Services Group (PNC), JPMorgan Chase & Co. (JPM) and Comerica Inc. (CMA) are among the best positioned to outperform amid low inflation, political uncertainty and a dovish Federal Reserve, per Barron’s.
“In a world of slow economic growth and political uncertainty, we’re trying to find ways to generate returns,” said David Carter, chief investment officer at wealth-management firm Lenox Wealth Advisors, in a story in The Wall Street Journal. “We’re actually buying a lot more dividend stocks now.” See the table below for a look at these stocks' track record.
Why Payout-Rich Stocks Can Lead
- Perform well amid low inflation, political uncertainty, and a dovish Fed.
- Dividends comprised 19% of total S&P 500 returns over the past five years.
- Top 20% of S&P 500 stocks by dividend yield and market cap weight beat the market over the past 60 years.
Source: Barron’s, WSJ, Greenrock Research, Morningstar
Income Stocks Post Outsized Returns Over Long Periods
Many investors are unaware that dividends accounted for 19% of the returns in the S&P 500 during the past five years, per Morningstar Inc. in the Journal, or that dividend stocks frequently perform better than non-dividend equities longer term. More striking, during the six decades through 2018, the top 20% of S&P 500 stocks by dividend yield and weighted by market cap led the broader S&P 500 by 2.13 percentage points yearly, per Greenrock Research.
Barron’s looked at stocks with dividend yields above 3%, all which ranked in Realty Shares’ top category for dividend safety. In analyzing dividend safety, the index provider looked at seven factors including earnings growth over the past 12 months, a company’s dividend actions over five years, the ratio of cash spent on stock buybacks versus dividends, and how much free cash is available to cover dividend payments.
Drug company Abbvie was the highest-yielding on the list, yet its shares remain in bear market territory. Broadcom, which boasts a 3.9% dividend yield, is the only tech company on the list. While investors fear a slowdown in the cyclical semiconductor industry, the chipmaker has seen its shares gain 11.5% over 12 months. The company is slated to report quarterly results on March 14.
The attractiveness of dividend-paying stocks may demonstrate that many investors remain cautious and fundamentally unimpressed by the euphoria of the market rebound this year. Instead, it appear that they are both on the lookout for short-term pitfalls and also selecting stocks for longterm outperformance.