Ebbs and flows

Question: How have high-dividend paying stocks performed in 2023 compared to 2022?

Deborah Bickerstaff: When thinking about what's driving market performance here in 2023, it's a complete reversal to what we saw in 2022. Dividend-paying securities here in 2023 are painfully out of favor. But it's not surprising, it's actually a natural rotation. When we go back and look in 2022 where we saw dividend-paying companies were putting up total returns 6, 7, 8% positive, whereas the S&P 500 was putting up a -18% total return in that calendar year. So what we're seeing here in 2023, again, not surprising, a natural rotation, if you will. When we take a look at sector returns for those dividend fertile segments of the U.S. marketplace, we're talking about Consumer Staples, Health Care, in some instances, Utilities, these segments of the market are down, they're negative territory year-to-date, anywhere from a -1, -2% to -10% specific to the very oversold regulated utilities. I also do like to look at factor attribution, which really provides you that indication as to what the markets are chasing. And when I view factor attribution, what I like to do is quintile, meaning breaking the S&P 500 into buckets on different factors, and I can quickly see year-to-date, for example, the two factors that are really important for that high-quality dividend-paying portfolio. Obviously dividend yield, but also beta, a risk measure. Well, high beta is beating low beta by about 45% year-to-date, so that's completely contrary to a high-quality dividend-based portfolio. We also see from a high-yield perspective, which is of course our cornerstone, those companies that don't pay a dividend or have yields less than that 1 to 1.2% range, they are also putting up returns 42% or so greater than the high-dividend paying quintile of the S&P 500 when we think of dividend yield. Let's talk about volatility and let's compare 2022 to 2023. In 2022, we did see that Magnificent Seven post an average total return of a -45%. Fast-forward to here in 2023, those investments are up 90% or better. That's quite the rollercoaster ride. Compare that to a dull, boring and dividend-based portfolio. In 2022, again, those investments were up 6%. Although they are in negative territory year to date to the tune of -6, -7%, a bit of a smoother ride. But critically, if you aggregate the performance of 2022 and 2023, that Magnificent Seven bucket, their performance is flat. Huge decline in those names, huge recovery. But when you net it all out, flat performance. What a ride for just getting flat performance? Now if you look at the S&P 500 did a little bit less to the extremes, -3% cumulative for those two timeframes. Your dull, boring, dividend-based portfolios flat to perhaps a -1 or -2% across those two timeframes. My point really being, there are two ways to compete with the stock market. You can identify the next unicorn. Does anybody have that in their back pocket? Who's got that on their bingo card? I do not. Or you can play steady defense so you can be the hare, which is the stock market, or be the tortoise, the slow and steady accumulation of total return from high-quality companies that are committed to a progressive dividend policy that they raise those distributions across the market cycle. This is really emblematic of those companies that are mature in their own business model and can continue to pay and raise dividends during times of distress because they are providing services or even small ticket items across again, that market cycle.