Investors are turning to dividend stocks and related exchange traded funds in the current market environment.
For example, the iShares Core High Dividend ETF (HDV) was among the most popular picks over the past week, attracting $1.9 billion in net inflows, according to ETFdb data. Meanwhile, the Schwab US Dividend Equity ETF (SCHD) has been among the most popular ETFs of 2022, bringing in $6.0 billion in inflows.
Investors have jumped on to companies that come with regular payouts to shareholders, reflecting higher demand for cash as the Federal Reserve hikes interest rates and major stock indices stumbled in 2022, the Wall Street Journal reported.
Since 2020, companies paying high dividends have outperformed those with lower yields and shares of companies engaging in share buybacks have fallen behind those with the lowest buybacks, according to Credit Suisse analysts.
“If I have a choice between you buying more of your stock or you giving me cash… I’d rather have the cash,” Max Wasserman, founder of Miramar Capital, told the WSJ.
The ongoing demand for dividend-paying stocks reveals the premium that investors are willing to pay for steady cash returns instead of banking on future profits. The shift in investor sentiment has intensified as the Fed steered toward aggressive interest rate hikes to rein in decades-high inflation levels. Consequently, with elevated inflation and rising interest rates, the value of companies’ potential future earnings are lowered while increasing the attractiveness of reliable cash payments today.
John Augustine, chief investment officer at Huntington Private Bank, argued that his firm’s equity strategies have all been beefing up on dividend-paying stocks in recent months where each even includes a higher dividend yield than their benchmarks.
“We don’t know what the Fed is going to do next year, so I want the cash now,” Augustine told the WSJ.
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