The reversal of the market encourages large dividend stocks

Money is king now. The latest evidence is that the market has long embraced dividend-paying stocks, a long-standing favorite of companies that make purchases.

Investors go to companies that promise regular payments to shareholders as a sign of Wall Street’s hunger for cash, as the Federal Reserve raises interest rates and struggles with major stock market indices.

The S&P 500 fell 0.8% on Tuesday, and the Nasdaq Composite fell 2.3% as technology stock sales rose. Following the rise in major indices on Monday, the decline has been another example of the whipsaw trade that has confused investors in recent months.

This has led investors to turn to companies like AT&T Inc..

and Altria Group Inc. cigarette makers.

as the broad market suffers from one of the most volatile intervals in the last decade. Concerns about rising interest rates, soaring inflation and slowing growth have turned the stock market upside down, and many investors have sidelined companies that have dominated the past decade – often companies that pay no dividends or pay a small fee.

Having money is very popular on Wall Street today. It’s a big change from the behavior of professional asset managers over the last decade. Dion Rabouin of the WSJ explains why money is no longer rubbish. Illustration: Adele Morgan

Corporate executives who chose to buy shares and pay thick dividends were often rewarded by shareholders in the 20 years leading up to the Covid-19 pandemic. Lately, there has been a divergence.

Since the beginning of 2020, companies that pay high dividend levels have continued to outperform those with lower payments, and the shares of companies that put the most money into stock returns have lagged behind those with the lowest purchases, according to Credit Suisse analysts.

“If I choose to buy more of your shares or donate money … I’d rather have cash,” said Max Wasserman, founder of Miramar Capital, which oversees the shares of companies that pay dividends including United Parcel Service Inc..

which has increased the return on investors this year.

The change shows that the premium that investors pay for permanent payments is more than the promise of future profits. This preference has only increased as the Fed embarked on an ambitious campaign to raise interest rates to keep inflation afloat. High inflation and rising interest rates eat up the future profit value of companies, increasing the attractiveness of current cash.

An exchange-traded fund that aims to invest in companies that throw away a lot of free cash, the Pacer US Cash Cows 100 ETF, has grown by about 1% this year, while major indices have fallen by two digits.

Many of the most profitable dividend stocks in the S&P 500 have moved up the broader market. Shares of AT&T rose 14% this year, shares of Altria Group rose 12% and shares of pipeline operator Oneok Inc..

They added 8.5%. All three shares have a dividend yield of more than 5%, according to FactSet. The benchmark index fell by 17% in 2022 and has been on the brink of bear market territory.

S&P 500 companies paid a record $ 137.6 billion in dividends in the first quarter, according to the S&P Dow Jones Indices, and senior index analyst Howard Silverblatt expects to set a new record this quarter.

The S&P 500 High Dividend Index rose 3.6% in 2022, while the S&P 500 Buyback Index fell 13%.

Dividend shares have not always been the star. In recent years, many investors have concentrated on highly valued companies, many of which have offered high returns in the future instead of right now. This year, many of those bets have turned around and gained weight in the wider market. Investors say the free cash offered by companies that pay dividends is more valuable right now because of higher interest rates.

John Augustine, chief investment officer at Huntington Private Bank, said his company’s stock strategies are adding shares to pay dividends in recent months, each with a higher dividend yield than its benchmark.

“We don’t know what the Fed will do next year, so I want the money now,” Mr. Augustine said.

Today, the desire for cash is clear in the gap between the shares of the largest U.S. capital gains that do not pay dividends and those that do not pay dividends.


Do you expect dividend-paying stocks to continue to perform better? Why or why not? Join the conversation below.

According to Bespoke Investment Group, Russell 1000 shares, which had the highest dividend yield on November 19, 2021, rose by an average of 4% over the next six months. Shares of Russell 1000 companies without dividends fell by an average of 29% during that time.

Giorgio Caputo, fund manager at the JOHCM Global Income Builder Fund, said he has recently sided with energy companies because of the possibility of higher dividends. It has also made adjustments to its portfolio due to higher inflation and rising interest rates.

“It’s a nearly 180-degree change from what we’ve seen in the last decade,” he said.

Write to Karen Langley at and Gunjan Banerji at

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The reversal of the market encourages large dividend stocks

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