![]() Sam Huszczo, founder of RIA SGH Wealth Management, is constantly pushing back against his clients’ requests for dividend strategies. Versus the S&P 500’s total return, however, that index has unperformed on a six-month, one-year, 5-year and 10-year intervals. “Raising your dividend for 25 plus years is no easy feat,” said Rupert Watts, head of factors and dividend indices at S&P Dow Jones Indices. While trailing its namesake benchmark, it’s beaten nearly every US active manager over the past decade. Take the S&P 500 Dividend Aristocrats index, which comprises S&P 500 members that have raised dividends for at least 25 consecutive years. To be sure, the ability to consistently pay a dividend over a long time-span is often a hallmark of a company’s stability. Just $786 million has flowed into dividend ETFs so far this year, the smallest haul since 2006, according to Bloomberg Intelligence. He’s not the only one avoiding the sector. “We have not taken the bait,” he said, who noted growth stocks “aren’t going anywhere,” particularly if interest rates have peaked. This year has been a particularly rough one for stocks valued for their cash flows because of increases in bond yields, which represent competition for investor dollars.Īdam Phillips, a portfolio manager at Torrance, California-based RIA EP Wealth Advisors, says he’s gotten numerous emails and calls over the past year from fund issuers pitching dividend-paying strategies. Any payout they provide shareholders is effectively offset by mechanical declines in the price of the stock - the so-called ex-dividend effect - leaving returns mostly a function of stock picking. The idea dividends enhance stock returns is a selling point of brokers that is itself subject to dissent. Compare that to VIG, which holds nearly one quarter of the fund in information tech, a rare feature for dividend funds. Its top holding, manufacturer 3M Co, has plunged 15%. In the case of SDY, half of the fund is concentrated in three sectors that have declined this year: consumer staples, utilities and health care. State Street’s Matt Bartolini noted that dividend strategies have a “value bias” and 2023 was a “growth market.”įor the most part, the flood of cash to dividend strategies meant investors got pushed into the likes of value stock and out of Big Tech megacaps, which have driven the market gains. ProShares said that the companies in NOBL delivered “fundamental performance,” delivering earnings growth on average, even as overall earnings for the S&P 500 shrunk this year. Invesco’s Nick Kalivas said that PFM’s lagging performance is linked to its underweight to the so-called Magnificent Seven and overweight to less “growthy” technology names like Oracle Corp., Cisco Systems Inc. Funds that have eked out gains have mostly posted small ones, like the Invesco Dividend Achievers ETF (PFM) which is up 6.6%, the ProShares S&P 500 Dividend Aristocrats ETF (NOBL) which is up 2.3% and the Vanguard Dividend Appreciation ETF (VIG), which is up 9.6% and focuses on mid and large-cap stocks. The casualty list includes the $20 billion SPDR S&P Dividend ETF, down 3% (SDY) on a total-return basis, the Schwab US Dividend ETF (SCHD), off 2.4% and Vanguard’s High Dividend Yield ETF (VYM), which is mostly flat for the year. Instead they were saddled with underperforming companies that proved especially vulnerable when yields shot higher. Investors wanted exposure to companies with a history of paying out profits as a precaution amid the Federal Reserve’s most aggressive tightening cycle in 40 years. It’s the latest lesson on the dangers of market timing.
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