Behind the scenes Behind the scenes\images\insights\video\production-control-room-small.jpg October 24 2023 October 24 2023

Behind the scenes

 Dividends are working, even when out of favor.

Published October 24 2023
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Video Transcript
Question: Why is dividend growth important for the average investor?
Deborah Bickerstaff: Dividend growth is critical for the average investor. Again, I believe every portfolio should have an allocation to dividend-paying companies and especially those that can raise their distribution over time. And there's a multitude of reasons. First, the prospects of inflation are here. It's no longer a future problem. It is today. And a portfolio that can raise its distribution to that end client over time can help protect that client's purchasing power. But secondarily, we have found by looking at the history of the stock market, that the correlation between dividend growth and subsequent price appreciation is greater than 90%. So you have an opportunity with a dividend-paying and growing high-quality portfolio to provide a market-like total return where the initial total return is coming in that dividend check. We can look at the last 10 years, every time the S&P 500 has declined by 5% or more, 30 instances, in 25 of those instances, dividend-paying high-quality companies went down less to the tune of 3.6% on average. We don't have to be the next unicorn. We can play that steady defense and keep up and compete with the market, providing that market-like total return, but just taking a bit of a smoother path by not going up as much as the market, but of course critically not going down as much as the market. It's really important to remember that even if dividend-paying stocks, high-quality dividend-paying companies are not gaining a foothold in the stock market today, those investments are still working for you. Remember, these companies are characterized by having very strong balance sheets, high credit quality, durable cash flows that these companies can continue to pay you that resilient dividend income over time.
Tags Equity . Markets/Economy .

Views are as of the date above 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.

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.

There is no assurance that any investment strategy will be successful and no one particular investment style is suitable for all types of investors.

The value of equity securities will rise and fall. These fluctuations could be a sustained trend or a drastic movement.

S&P 500 Index: An unmanaged capitalization-weighted index of 500 stocks designated to measure performance of the broad domestic economy through changes in the aggregate market value of 500 stocks representing all major industries. Indexes are unmanaged and investments cannot be made in an index.

Correlation expresses the strength of relationship between distribution of returns of one data series and its benchmark. The coefficient correlation is always between +1 (perfect positive correlation) and -1 (perfect negative correlation).

Past performance is no guarantee of future results.

Federated Equity Management Company of Pennsylvania