Why Dividends Will Be Hot Again Next Year | ETF Trends

Among the 2021 themes emerging in recent weeks is rising bullishness for dividend stocks in the new year.

Advisors can position for that theme with the WisdomTree Global Dividend Model Portfolio.

“This model portfolio seeks to provide capital appreciation and high current dividend income, through a globally diversified set of WisdomTree’s dividend income oriented equity ETFs. The model strives to deliver dividend income in excess of the global benchmark of equities,” according to the issuer.

Dividends are in demand as fixed-income investors face a lower-for-longer interest rate environment. The Federal Reserve is expected to maintain its near-zero interest rate policy to help push inflation up, bolster the economy, and lower the unemployment rate. The Fed has already stated it was willing to let inflation run higher to offset years inflation fell below its 2% target.

“Payouts are already starting to pick up. After a year where dividend cuts and suspensions were common in corporate America, there were 29 dividend increases and one initiation in November, compared with one cut and no suspensions, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices,” reports Jesse Pound for CNBC.

Model Portfolios to Prepare for a Dividend Awakening

The aforementioned WisdomTree model portfolio has stood tall this year because it emphasizes quality and dividend growth, traits that steadied it against the backdrop of dividend cuts and suspensions in the first half of the year.

Companies are increasingly confident in growing dividends again, even as another surge in Covid-19 cases threatens earnings. According to FactSet estimates, S&P 500 per-share earnings are expected to bounce 22% in 2021—to above 2019 levels.

As a result, companies are feeling better about returning more of their capital to shareholders. S&P 500 dividends are expected to grow 3% in 2021 from 2020, according to FactSet. The payout ratio—the percent of earnings companies use to pay dividends — is expected to fall to about 35% from 42%, but the pure growth in dividend dollars still provides an attractive yield opportunity at current prices.

Investors should consider quality dividend growth stocks that typically exhibit stable earnings, solid fundamentals, strong histories of profit and growth, commitment to shareholders, and management team conviction in their businesses.

“Silverblatt said in a note to clients that the amount paid out in dividends next year could surpass 2019, before companies were even thinking about the pandemic,” according to CNBC.

For more on how to implement model portfolios, visit our Model Portfolio Channel.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.