In defense of dividends

Linda Duessel: Hello, and welcome to the Here and Now podcast from Federated Hermes. I'm Linda Duessel, senior equity strategist. Today I'm joined by portfolio manager Deborah Bickerstaff to discuss the past, present, and future of dividend investing. Deborah, thank you for joining today's conversation. I think it's going to be very interesting given the kind of a year we've had so far, and hasn't it been quite a 2023, Debbie, the S& P having a great year after a dismal 2022. So, how have the high-quality dividend paying stocks fared in 2023?

Deborah Bickerstaff: Thank you for having me today, Linda, and a great place to start because frankly, let's just hit that nail on the head: dividend investing has been out of favor here in 2023. And to your point, it is a reversal from what we saw last year. When we do take a look at dividend-based portfolios, we can see that their total returns year to date are flat or modestly negative, the S&P 500 up 20% or so. If we take a look under the hood of the sectors that have really been out of favor year to date, they've been the dividend fertile segments of the market. So, we see negative returns in utilities and in energy, really flat performance coming out of consumer staples and healthcare, if you will. So, it has been a polarizing period when you think of what really occurred in 2022 versus where we're at here in 2023. But what I would suggest as a dividend investor, that creates opportunity.

Linda: Yeah, I think we'll talk about that a bit more here. It is really the winners have been the laggards for last year because last year, you only won if you had cash, energy stocks, which as you referenced were down this year and high-quality dividend stocks. So, what then, Debbie, what then have been the driving factors of market performance this year?

Deborah: Everything but what the income collector is chasing. I do like to look at factor attribution to understand what's really the market drivers in the S&P 500. And if we break apart the S&P 500 on beta buckets, if you will, quintile it, break out into five buckets, we quickly see that high beta has beat low beta by about 50%. So, you're talking the riskiest assets, the most volatile-

Linda: 5-0, Debbie?

Deborah: 5-0, Linda. And then, speaking directly to our space from a dividend yield perspective: those companies that don't pay a dividend or have very low dividend yields in the S&P 500 have beat the fertile, high quality dividend paying companies by 4-0, Linda, 40%. And that translates into sector experience where you have technology and just the pieces of discretionary and comms services that have been reclassified that were the old big tech companies. Those are the only securities that have really been driving this broad-based market performance. Technology's been 60% of the S&P 500 return, and guess what? Tech doesn't pay dividends. You add in tech and discretionary have been 80% of the market return. Now to further exacerbate, and if you will just allow me a little bit of latitude here: when you strip out that Magnificent Seven, we all know who they are, you strip them out of the S&P 500, that year to date return drops from 19% down to about 8%, which is really just a more normalized average total market. Hey, we're talking about two very distinct periods here: 2022, year to date 2023. 2022, we saw those big companies providing an average total return of negative 46%. That's how much pain they experienced. This year, they're up 95%, but you aggregate those two periods, you get a cumulative return that's flat. Think about that: flat, extreme drop in the market, extreme peak, and they negate each other. If you take a look at these dull, boring, dividend-based benchmarks, last year they put up returns of 7%. This year, they're up 1% to 2%. Guess what? You aggregate that you have a 9% total return, so you can have this extreme volatility in the market, it does not necessarily get you to the outcome that you expect that sometimes really the hare of the market is the laggard versus us the tortoise.

Linda: A couple of very excellent points you've made there, and I think quite striking as well, the big difference between the high beta and the low beta segment. And of course, the elephant in the room, which is the excitement in and around artificial intelligence, the AI movement: if you look at all the market returns this year to date, most of them have been price to earnings multiples expansion. And as you suggested, much of the spectacular run in these so-called Magnificent Seven names were just to try and catch up with the pain that they suffered last year. So, I don't think a lot of people do appreciate that. But we did suggest, and you just suggested that last year was a good year, particularly relative for the high-quality dividend strategy, but did the high quality of the names, having been a safe place and sought after last year, did they come into this year expensive versus the market?

Deborah: I would suggest absolutely not. They were not expensive, and you're just experiencing a little bit of price depreciation here that when I take a look at multiples, these companies, and you can take a look at the Russell 1000 value, you can look at dividend based benchmarks, these high quality companies that can deliver on that progressive dividend policy that end investors certainly seek, they are trading roughly 15% to 17% discount versus their own valuation when you're looking at forward P/E, versus their own history, 15% to 20% discount. Whereas these heavy growth areas that we're talking to, these big tech companies are trading 18% premium versus their own history. It really drives home I think a very important point that I think our market today has a technology problem. We are often asked about utilities, regional banks, but when you take a look at the technology weight in these indexes, the S&P 500, that Magnificent Seven, is 30%. The Russell 1000 value did get out with their most recent rebalancing, but the Russell 1000 growth has a 50% exposure. NASDAQ is still flirting with a 43% exposure to this Magnificent Seven, seven securities. The market has a technology problem, and that will sort itself out over time.

Linda: And I think that's a very interesting point that you made, we'll talk about technology here in a moment, but for the high quality dividend strategy to come into this year, inexpensive versus its history, and then relatively even more inexpensive today, contrarians may want to take note here: no matter how excited they are or we are about AI, I'm quite excited, excited about it too, it's reminiscent of the late 1990s with the internet advances that were made and the excitement in and around that. So, with the understanding and you suggest we have a tech problem, we definitely have tech in the limelight here, are valuations of the value versus growth styles in general following a pattern similar to that of the late nineties?

Deborah: I absolutely believe that it is. Once again, what we see here are investors chasing ideas on paper. AI, for example, we're not going to see that meaningfully impact earnings profitability. It could be 10 years or so out. What we're seeing again is investors, as we saw in that .com period of time, where they were just chasing ideas on paper, the next website, the next .com, where you have that built up of euphoria, and it is now as it was then on the backs of very low interest rates. Remember the seventies: you saw interest rates hit 14% in the US marketplace. Well, when that dropped all the way down to 5% or 6% in the 1990s, that really generated that boom in speculative investing when you have easy money in the system. And that is exactly what we have seen this time around. Remember: since roughly 2010 through 2019, we had the longest and strongest bull market in history, thanks to this very low monetary policy. And that is again, what has really spurred, if you will, this speculative investment that we are seeing in AI, big tech that is really transpiring today because let's be real, there is hair on these big tech investments: there are litigation concerns, antitrust concerns, they're on the government hill, if you will, in Washington DC every other week testifying that many of them have no earnings. You are looking at indexes. If you look at your Russell Growth 2000 and 3000 index, 40% of them have no earnings. So, at some point in time, that does have to be reconciled.

Linda: Yeah, well, I'd like to latch onto that last comment you made about zero earnings, and of course if in the overall growth bucket, all growth stocks in general looked at price to earnings versus that of value. Historically, you're about as expensive, not quite yet, but about as expensive as you were just before the tech bubble burst. So, owing to your song, it's not like it was then. And of course, I remember I was in the business back then, I remember the siren song: value managers feared that their underperformance would lose them their job, so they slipped in some growth. And maybe if they didn't, they would've lost their jobs. But eventually, those who did violate their value strategy ended up losing their jobs when the bubble burst. So yeah, these times are very exciting and sometimes history does rhyme, doesn't it, Debbie? Moving along then to the situation now with high quality dividend stocks, I'd like to talk about the valuation of them now. And as a student of history versus the S&P 500, what about that? How inexpensive are they now?

Deborah: Frankly, I am pounding the table on the opportunity that is presented in dividend, high quality mind you, dividend paying companies right now. And it is a multitude approach. It does have to do with demographic issues, but valuation, valuation, valuation. We are all in business to buy low and sell high at the end of the day. And when you have a broad market that is advancing on such narrow leadership, and everything else is left behind, it becomes, optically, very easy, very transparent to really see the opportunity that is being presented to you from a valuation perspective. Frankly, the last time dividend paying companies were expensive was the midpoint of 2016. And at that point in time, the high-quality space could only provide a dividend yield of roughly three and a half percent. Well, you roll forward today, and let's remember we do use dividend yield as a valuation measure, such as PEs and price to books, but you roll forward today and that high quality space has opportunities with dividend yield that that is really that high end of the multiple range where you can really see dividends are on sale and entry points matter. But we did not get, in this investible universe, to that higher dividend yield or to that improvement in our multiple. We were trading three turns higher than the S&P 500 on forward earnings in 2016. Today we're trading six to seven turns lower. We did not get there because our stock prices fell out of bed. Our valuation multiples and the dividend yield of the market, of this high-quality dividend paying and growing market, improved on the back of earnings growth, which propelled dividend growth. So our stock prices were in a holding pattern, but certainly that earnings and that dividend continued to grow to really right size our valuation while we continue to watch the S&P 500, again, continued to get progressively so expensive versus its own history. So expensive versus the dividend universe. Again, this narrow market leadership gives you that transparency so that you have visibility into what those opportunities are going to be. And I suggest they are for the next decade.

Linda: And of course our is our group who are looking at high quality dividend stocks. That's who we are. That is the group you refer to. And I love what Debbie, I talked to Debbie quite a bit, and I know Debbie likes to say, 'Valuation entry points matter.' They matter. We want to buy low and sell high. And then human nature seems to do quite the opposite. And as goes, how inexpensive is this high-quality dividend trade versus the S&P? Why it's not been so expensive since 1999? Here again, contrarians may want to take note. Now, is it, I think you kind of referenced this here a moment ago, but is it inexpensive versus the S&P because these high-quality sectors, these turtle wins the race type sectors, are they doing something fundamentally and/or disappointing as a group?

Deborah: Absolutely not. And if anything, I would suggest that this group does continue to be dull and boring, as it is intended to be. Again, we are the tortoise versus the hare of the stock market. What we are seeing, frankly, as I mentioned, dividend yield for this investible space has been at the high end of the range, which is very attractive. But importantly, the second variable that you do seek in a high-quality dividend paying company is dividend growth. And that has been also very compelling, really since we have come out of the closure associated with COVID. Dividend growth has returned to the high-quality dividend paying investible universe in a very attractive fashion. Dividend resets, blowups, and surprises have really drifted into the background, if you will. That this space is compelling, again, from a valuation opportunity because these companies are backstopped by very strong balance sheets, durable cash flows, and high credit quality. And that is really what my team is assessed with doing. We spend our time ensuring, at all points in time, that this portfolio is well positioned from that valuation perspective on a go-forward basis. We're looking at those balance sheets and cash flow statements. And we are a team of four portfolio managers, seven really global sector specialists who are bottom-up fundamental in their nature. And we are building models, but we are building them really to assess dividend growth. Thereafter, we do spend a lot of time having an ongoing conversation with the C-suit of these companies so that we have the best visibility into that capital allocation priority list. And we want to understand where that dividend check, if you will, really resides in that list.

Linda: So I think you've made a very interesting point here as about the groups themselves, the sort of high-quality dividends sectors that one might be attracted to. Those companies, as you suggest, have a culture of dividends and how important it is to not to throw the baby out with bath water, not just buy a whole sector because some companies are better situated than others. So great to have a team that really looks at things. In my work as a market strategist for Federated Hermes, I mean, I follow the sector's relative valuations versus their price to earnings over the last 30 years. And it's been changing a lot, as we know. There's been a lot of rotation in recent months, as we've discussed the siren song for growth as versus value. Gosh, the energy, the financials, the healthcare, the staples sector, the REIT sector, these have all been punished so much that they are, versus their earnings even, very inexpensive versus a 30-year trading pattern. So, if one didn't believe that the group itself was totally flawed, it would seem like a very interesting idea. Now I'd like to, before we move on to another big picture discussion, ask you to share with our listeners how the international dividend payers in particular have fared by comparison this year.

Deborah: And that is actually a great question because we've actually come through a period of time where the international marketplace really had its own lost decade, I would suggest, up until really September of 2022. And that's where the international marketplace began to finally assert itself on the global scale. And when you look at that lost decade for them, really the only total return that came from the market was from the dividend check. You had price appreciation, really. Whether you're talking broad based benchmarks or dividend-based benchmarks, you had very muted price appreciation of flat to 1%. But thankfully, the international marketplace does have a higher going dividend yield than the US marketplace. So, you actually had, at the end of the day, an annualized total return anywhere from three to 4%. But again, thanks to the dividend check. And that's really not surprising, the last decade, when you think what's happened over the last 10 years. You've had the global financial crisis, Eurozone crisis, Brexit, concerns about China, GDP growth, Ukraine-Russia war, you can really go on and on. But we saw that really rotate importantly in September of last year. And since then, the international markets, broad-based and dividend, have been putting up total returns that have been about, I would say, versus broad-based benchmarks, five or 6% ahead of what's here in the US. But broad-based dividend benchmarks abroad have been putting up total returns that are double what we've seen here in the US. And the big distinction, when you look at our US benchmarks, and we've discussed this already, technology and big tech are a heavy, heavy anchor in our US indices. The S&P 500, again, almost 30% technology, or the magnificent seven, however you want to slice it. But abroad, those international benchmarks only have exposure of about 8% to technology. And so, what that tells us is the advancement we have seen abroad has been healthy and broader based. And I would just want to share here and remind our listeners that, here at Federated Hermes, we do manage domestic, global, international dividend-based portfolios. And that dividend market has historically provided that higher going yield out of the gate, not due to elevated risk, but thankfully due to the fact that payout ratios are naturally higher abroad than what we can achieve here in the US. So, we have been international investors really from day one when we started 22 years ago. But we are really pleased to see that the international marketplace is gaining a foothold here year to date.

Linda: All right. They had their lost decade, and they may be, very well may be coming back. Well, so now I'd like to change the subject a bit. I'd like to discuss inflation, the Fed and high-quality dividend stocks. So how have high quality dividend companies responded to inflation?

Deborah: Well, starting with inflation, inflation is an additional cost, that you do need to have companies that have earnings to help really offset those heightened costs. So, what you see historically, and I could even share what we've just went through, our inflationary environment really picked up in the first quarter of 2021. We saw it finally surpassed the Fed's 2% target range and really moved up quickly to 9% in June of last year. And through that period of time, and we do have some overlap where rates were accelerating also, what you see, and this is evident in some of the performance we've already discussed, your high-quality dividend paying companies did well. They were up 10% or so. The S&P 500 was modestly negative, but importantly, big tech down 11, 12%. And why is this? Again, you do have to have earnings that are going to help offset increased costs over time. And frankly, when you think about inflation, as everything becomes more expensive, these companies that are just hanging on by a thread cannot be profitable. You do tend to see high quality institutions really outperform when you see inflation. So, value outperforms, high quality outperforms, high dividend paying companies outperform. So it's really no accident that you saw the NASDAQ down importantly last year while we saw this big move up. So, you do tend to see areas such as energy be an outperformer because it reprices daily out there in the market and it can pass along that higher cost to the consumer. Consumer staples also, because no one's going to really dump their cloth diapers and move into disposable diapers because they've gone up a quarter at the supermarket. Elsewhere, pharmaceutical companies do well. We all do need our pills, our medications. But what is interesting is, last year, utilities were the second-best performing sector in the market because we did see, again, a movement upward. Pressure on that space really did not hit or really dampen the appetite for that space until this year when we started seeing a bigger pickup in rates.

Linda: So Debbie, you've explained to us how the higher inflation didn't necessarily hurt the demand for the products of some of these high-quality sectors, dividend paying sectors, as much as others. And obviously that was one of the reasons probably that the stock market rewarded them last year as versus the market in general. Of course, now inflation is coming down. Interest rates particularly have gone up in terms of, well, the long-term interest rates and they're still reasonably high. And of course, the Fed funds have continued to march higher. So how have companies and sectors in your purview responded to rising interest rates?

Deborah: So this is a good question, and we can look at rates two different ways. We can look at a change in the Fed fund rate or we can look at the 10-year Treasury. Regardless, the big move in rates occurred last year as well. So we did see, for example, the Fed fund rate really start out 25 basis points or so and hit a level of 4.5% last year. And of course, most recently we're at 5.5% this year. And when we look at the 10-year Treasury, we saw a move from 1.5% to maybe 3.8% last year. And I cannot pound the table enough on this. As I've mentioned, high-quality dividend paying stocks last year outperformed. The dividend-based benchmarks that we look at, up 7 to 8% in a market down 20%. So I've mentioned that that ability to pass along higher costs is really critical, and we saw that play out last year. But to really overlap that also, anytime we do see the Fed begin to raise rates, we know that there is that risk that they're going to push us into a recession. 80% of the time that the Fed has raised rates, that's exactly what happened. So, we do have the benefit of the fact that our high-quality companies can accommodate a normalized rate structure, whereas low quality companies have really survived over the last 12 years thanks to that very easy monetary policy. Those companies cannot really handle a normalized rate structure

Linda: And Debbie, as you think about the different sectors and as your analyst team tries to find those names in the sectors that can withstand, even if interest rates stop going up, they may stay up for a while. Are there companies out there that can be found that maybe had taken advantage of generationally low interest rates in the last 15 years and don't really even care about rising interest rates right now because they're set with their capital structure?

Deborah: And you're spot on. Didn't we all really refinance the mortgage? Didn't we all? And when you think about these high-quality dividend paying companies, they do have to be thoughtful about their debt stacks. And we have seen across the board where the high-quality investments have termed out their debt, where they have been able to lock in low fixed rates that's going to really carry them through for the next 10, 15, 20 years. And when we think about that as well, interest rate risk for those companies isn't until that point in time. Now, the rate increase that we saw this year, that extra 1% pushing us to 5.5%, that does hurt because that does start becoming competitive with the total returns that you can find in these high-quality dividend paying companies. So I would attribute this loftier level of rates that we have not seen, what, 30, 40 years to be a factor that has taken some of the steam out of dividend investing in the year-to-date period of time. To source that rotation into big tech, investors, some have sold to move into money markets, but some have sold their equity income portfolios to chase that big tech.

Linda: But this takes us to something that we've been seeing here, and as I just throw out here with our general outlook at Federated Hermes that we've seen and suggested that a resilient economy and with inflation declining nicely, we probably will avert the recession that many had expected this year. Perhaps inflation keeps receding, although the Goldilocks 2% level may be harder to come by than many people think. And it may not occur unless there is a significant increase in unemployment and worries for a recession. And that might be when the Fed pivots, which the pivoting of the Fed and when will they first cut rates has been something that has been so much anticipated. When Fed pivot happens historically, Debbie, how do high quality dividend paying stocks usually perform?

Deborah: Well, it's really going to be the shape of the pivot. Something really dramatic, pronounced, is going to be disadvantageous for the high-quality dividend paying space, but really just from that total return perspective. So, I would expect these companies to underperform from a pricing perspective, but that dividend check is going to help offset the fact that the markets may be preferring something a little sexier, such as back to those technology companies.

Linda: Historically, the Fed tends to pivot because they realize they went too far, and historically they do go too far. And historically it doesn't matter that they started to pivot, they are going to throw us into a recession. So in the event of a Fed pivot and an eventual recession that the market tends to discount, how do the high-quality dividend paying stocks like a late cycle or a recessionary environment?

Deborah: Certainly. So, once you do get past that risk on moment, you're absolutely correct, the high dividend paying companies are going to be where you're going to have a protection versus the volatility that you're going to experience in the broad market. They call me Debbie Downer at the firm because I look forward to those periods of time. You can go back and look at when the tech bubble burst, for example. You saw the S&P 500 drop 20% in 2020, but the dividend paying high quality space was virtually flat through that period of time. You can look at the financial crisis as well. Defensive high-quality companies outperformed by about 10% versus the broad-based market. We can also point to last year as well, which brings me to an important point. Has nobody learned their lesson with what we experienced last year? This big pile on in the market this year is really setting us up to repeat the experience of 2022 and 2023. I look forward to the next year or two really potentially having that same performance pattern as we experienced in 2022.

Linda: Okay, Debbie, I see why they call you Debbie Downer. What you bring up is somewhat of a reminiscence for me of the 1970s. I was around in the 1970s, you probably weren't. You may be too young to have been around in the business then, but boy, that was a Debbie Downer. Who knows, maybe that's when we came up with that term. That was a Debbie Downer, they called it the dismal decade because of the inflation genie, which, well, we haven't seen it come out of its lamp since the '70s and now it's back out at us. Of course, the Fed and Jerome Powell, as he gave us a very recent rate hike, said in so many words, 'I'm probably going to keep it higher for longer,' because they are very focused on the labor market and the stubborn inflation there.

Deborah: The dismal decade of the '70s would be a euphoric period of time if we could experience something like that again for the dividend collector. When we go back and take a look, to your point, Volcker had to push up the prime lending rate to 21% to break the back of inflation. Of course, through that period of time, I have to be honest, the number one performing security was gold. It went from 35 dollars to 850 dollars per troy ounce. But what we do see is that, again, value outperformed commodities outperformed, so within energy, BP and Chevron were high performers. Again, companies that are committed to progressive dividend policies. Elsewhere, we saw healthcare and consumer staples. It really does come down to companies that have that ability to pass along pricing to the consumer. We are talking about the necessities of life, in many instances services and small ticket items, that are consumed across the market cycle in periods of time such as that great inflation period of time. Those, I would suggest, frivolous items were not what investors were pursuing. The cyclical space of the market was really sidelined through that period of time.

Linda: Debbie, in our studies, and I think you've helped me with these studies of the decades, the 1970s, they were the dismal decades. Oh, not for me, I had a great time personally in the '70s, but if you invested in the stock market at the beginning of the '70s and through the end your price change in total in stock market was 17%. That's dismal and dividends represented 77% of total returns then. If we do have, as I wonder, a more stubborn labor problem because of labor force participation and the baby boomers dropping out quicker than expected, who knows, maybe we'll still be fighting this for longer. But before we leave the Fed, I'd love it if you could briefly comment on one area. Now, with its fastest ever rate hikes in history last year, the Fed's raising probably had something to do with the failure of several regional banks in the spring of this year. What is the status of this group briefly again, if you would, and are there some high-quality companies which pay dividends out there still in the regional banking space?

Deborah: Absolutely. We only had two months where the regional banks were under pressure. We're talking mid-March to mid-May. Prior to that mid-March period of time, your regional banks were additive to total return in a dividend-based portfolio. Now, since we have seen the space really settled down, that midpoint of May to current, those regional banks, they're up on average of 25% or so. We just did see the new requirements with regard to capitalization come out yesterday or the day before and it is going to be reminiscent of what we saw coming through the great financial crisis. These banks have been really tasked with that level of capitalization, regulatory framework. Historically, they're just going to have to really ramp back up. But we are still seeing important dividend increases out of the space because much of this is priced in and the highest quality regional institutions frankly aren't the ones that were really garnering the headlines. The ones that my team really follow and focus on have lower exposure to those riskier segments of markets such as real estate, if you will.

Linda: That's an important comment. Here today we see that regional banks almost without concern for their quality, pretty much being priced at the same forward PE ratios. Put another way, they threw the baby out with the bath water and if you can find a company again with your fine analyst team, this group is in the lowest 10th percentile today of all industries on a relative forward PE basis. As you would say, a fertile environment, I think, Debbie, and it should catch anyone with a contrarian attention. As our time is running out, and I'd like to close up with you, I'd love it if you could discuss, Debbie, your view of the future of high-quality dividend investing, please.

Deborah: Certainly, and what I'd want to share with the audience is we have been framing our quarterly marketing decks, really focusing on what we believe is going to be the next decade of equity income investing. You do want to buy these companies again when dividend yield is high, when the multiples are on sale versus their own history or versus the S&P 500. But there are several themes that we are watching that really compel us on a go forward basis. As you and Linda and Linda, talked previously, there's a supply demand imbalance for income, even if the Fed fund rate is at 5.5%, even if the 10-year treasury is at 4%. We have a demographic issue here in the US, China, Japan, where we have so many individuals chasing few dollars. Here in the US that baby boomer segment, we still have 10,000 every single day hitting retirement age between now and 2030. The prospects of pensions have been dwindling over time. The future of social security continues to be debatable and at what age you can begin collecting. But importantly, since we have access to exceptional healthcare, we're all living longer, which means healthcare costs go up. There's an important segment of that generation and following generations that are going to be responsible for their cashflow needs. I think that really puts a high demand, again, not only on that high going coupon, but on those companies that can raise that distribution over time to face inflation, to face increased costs as this segment ages. Beyond that, I can't pound the table enough. Valuation, valuation, valuation. Then finally, I think event risk is back on the table. When you have these nosebleed segments of the market really going to the moon and everything's left behind, that really accelerates that prospect of event risk. We already have two camps of investors out there, the Debbie Downers of the world, and then those that are really chasing this momentum trade. Well, somebody's going to be right and somebody's going to be wrong. Then if I could also just point out, I think last year was an exceptional lesson on the benefits of diversification. Investors are using dividend-based portfolios just as a slice of the pie in their client's allocation. Last year, if they had a dividend based high quality portfolio in that mix, they could point to it and say, 'Look, this investment is doing what it's supposed to.' That I think investors year to date, and I've seen this, I think, across the board, especially with stickier assets such as SMA investing, investors understand why high-quality dividend paying companies are really out of the mix right now, and they're patient. They know that that opportunity will come again where these companies can serve their role in protecting the overall portfolio.

Linda: Excellent. Two powerful ways to end our discussion today. One, the importance of diversification, which you really would've appreciated last year, as you're saying, in the high-quality dividend space, but also your reference to the boomers. I am a boomer, I expect to live a very long time, and the baby boomer generation controls three quarters of the wealth out there, a very important consumer and investing portion of our country. We want reasonably safe income. That's what we want. You know what, Debbie? In my last 15 years in traveling and meeting advisors all over this country, the most common question by far and away was, 'How do I get income for my client?' Yes, cash may be king, but in a 60/40 portfolio, I think we both agreed, and very strongly, you're going to have a hard time finding lots of income over in the tech space. Right, Debbie? So, I thank you very, very much, Debbie, for this enlightening conversation, and I think we can all agree that the defense does not rest. Of course, thank you to our listeners. We look forward to you joining us again on the Federated Hermes Here & Now podcast.

Linda: If you enjoyed this podcast, we invite you to subscribe to the Federated Hermes Channel to get every Here and Now Episode. I also encourage you to subscribe to our insights email updates for the latest market commentary from the many great minds at Federated Hermes. And follow us on LinkedIn and Twitter.

Disclosure: Views are as of July 28, 2023 and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Past performance is no guarantee of future results. There are no guarantees that dividend paying stocks will continue to pay dividends. In addition, dividend paying stocks may not experience the same capital appreciation potential as non-dividend paying stocks. Although stocks offer higher return potential, they are more volatile than cash and other lower risk investments and principal loss is possible. International investing involves special risks including currency risk, increased volatility, political risks, and differences in auditing and other financial standards. Diversification does not assure a profit, nor protect against loss. The S&P 500 index is an unmanaged capitalization weighted index of 500 stocks designed to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. The Russell 3000 index measures the performance of the largest 3000 U.S. companies representing approximately 98% of investable U.S. equity market. The Russell 1000 index measures the performance of the large cap segment, and the Russell 2000 measures the performance of the small cap segment of the US equity universe. Indexes are unmanaged, and investments cannot be made in an index. Beta analyzes the market risk of an investment by showing how responsive it is to the market. Usually, higher betas represent riskier investments. Federated Equity Management Company of Pennsylvania.