The prospect of U.S. interest rates remaining elevated for an extended period of time is driving investors toward dividend-paying stocks, data showed.
Investors poured a net $272 million into U.S. mutual funds and ETFs that bought dividend-paying stocks in the two weeks to Wednesday, Refinitiv Lipper data showed.
In addition, net inflows into the above-mentioned funds or ETFs in 2022 will reach a record high of US$48 billion. However, those funds also pulled $835 million in January, when speculative stocks led the stock market rally earlier in the year.
With Wall Street’s early-year rally fading, a recent spate of stronger-than-expected economic data has prompted investors to rethink their bets that the Federal Reserve is coming to an end to its campaign to raise interest rates, with many now concerned that the central bank is trying to keep inflation down. It may be forced to continue raising interest rates and keep them high for a longer period of time.
10-Year U.S. Treasury YieldAfter falling at the beginning of the year, it rose once more recently and closed at 3.948% on Friday (24th), higher than the 3.826% closed at the end of last year. Rising yields will make growth and speculative stocks less attractive.
While higher interest rates may be bad for the broader market, dividend-paying stocks might be poised for another wave of highs.
When high inflation, high interest rates and recession fears weighed on risky assets last year, stocks paying high dividends generally outperformed the broader market, led byS&P 500 IndexThe S&P 500 High Dividend Index (S&P 500 High Dividend Index), which fell 1.1% last year, a drop of less thanS&P 500 Index– 18%.
While many investors and strategists believe the U.S. is still some way from a recession, dividend-paying stocks are somewhat defensive given the uncertainty facing the current economic, market and geopolitical environment.
Investment advisory firm Van Leeuwen, which manages regarding $350 million for clients, steers client portfolios toward dividend-paying stocks. In the past month, the company has bought electronic components maker Eaton (ETN-US), which has a 2% dividend yield and a total return of regarding 10% this year.
Christopher Huemmer, senior strategist for FlexShares ETFs at Northern Trust Asset Management, believes that the stock market rally in January was basically a bit of a “junk rally” (junk rally), but the situation has changed in February, and capital gains will decline. Dividends will be an important component of total compensation.
George Ball, chairman of Sanders Morris Harris, which manages $4.9 billion in assets, also said his firm has shifted a significant portion of client portfolios into stocks with “excellent earnings prospects” and “higher dividend payouts” in coming quarters, The company’s recent holdings include oil pipeline operator Enterprise Products Partners (EPD-US),Bank of America (BAC-US) and JP Morgan (JPM-US)。
