{"id":13004,"date":"2024-02-14T16:49:04","date_gmt":"2024-02-14T16:49:04","guid":{"rendered":"https:\/\/zacksim.com\/blog\/?p=13004"},"modified":"2024-02-14T16:49:05","modified_gmt":"2024-02-14T16:49:05","slug":"where-do-dividend-stocks-fit-into-todays-investment-strategies","status":"publish","type":"post","link":"https:\/\/zacksim.com\/blog\/where-do-dividend-stocks-fit-into-todays-investment-strategies\/","title":{"rendered":"Where Do Dividend Stocks Fit Into Today’s Investment Strategies?"},"content":{"rendered":"\n

Sydney B. from Tucson, AZ asks:<\/em> Hello Mitch, with interest rates at higher levels these days, do you think dividend-stock strategies have lost their appeal? Dividend stocks may make sense when investors can\u2019t earn interest on cash, but that\u2019s different now. I\u2019d be interested to hear your thoughts, thank you.<\/p>\n\n\n\n

Mitch\u2019s Response:<\/strong><\/p>\n\n\n\n

Thank you for sending me an email, Sydney. There are several insights to glean from this topic, so thanks for asking.<\/p>\n\n\n\n

If we look at just the very recent past, it appears that growth sectors like technology \u2013 whose companies tend not to pay dividends \u2013 have widely outperformed more mature businesses like banks, manufacturers, staples, and utilities where dividends are more common. The technology surge in the wake of the pandemic, combined with growing enthusiasm for AI, has catalyzed this disparity. Somewhat anecdotally, investors pulled $21 billion from dividend funds over the past year, while adding $12 billion to broader equity funds.1<\/sup><\/p>\n\n\n\n

In your question, you suggest that higher interest rates are a key reason why investors have favored growth stocks over dividend-payers recently. But in my view, it\u2019s more about the business cycle and shifts in market leadership, which sometimes take years or even decades to play out. It\u2019s also worth pointing out, however, that dividend stocks have indeed done well over the past several years, just not as well as growth stocks.<\/p>\n\n\n\n

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Leading up to 1950, dividends played a much larger role in total return (~80%) for the U.S. stock market than they have over the past decade (~30%). Dividends have also been lower recently, with the average dividend at about 2% over the past 25 years, compared to a long-term historical average of 4.3%.<\/p>\n\n\n\n

I think this dynamic could shift again looking forward. As many of the technology behemoths mature and begin to look more like value companies, investors may begin to demand more income in the form of dividends. Lower expected interest rates in the future may also bolster the case for high-quality dividend payers.<\/p>\n\n\n\n

From an investment standpoint, an investment\u2019s return is comprised of capital appreciation (or depreciation) plus dividend payments. A stock\u2019s price will go up and down over time, but a dividend payment is always positive once it\u2019s made. What\u2019s more, dividend payments are generally more predictable if an investor scrutinizes a company\u2019s dividend payment history and earnings from quarter to quarter.<\/p>\n\n\n\n

At Zacks Investment Management, we look for high-quality companies paying dividends they can sustain and also grow over time. I tend to see a dividend-stock strategy as a middle ground between a fixed-income strategy and a high-growth strategy, part of a diversified approach that can serve to reduce overall portfolio volatility. In this sense, a well-constructed dividend strategy has not lost its appeal \u2013 far from it.<\/p>\n\n\n\n

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Growth stocks (such as tech companies), which tend not to pay dividends, have been gaining in popularity. Where does that leave dividend-paying stocks?<\/p>\n","protected":false},"author":3,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"footnotes":""},"categories":[66,71],"tags":[],"class_list":["post-13004","post","type-post","status-publish","format-standard","hentry","category-mitchs-mailbox","category-private-client-group"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13004","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/users\/3"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/comments?post=13004"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13004\/revisions"}],"predecessor-version":[{"id":13006,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/posts\/13004\/revisions\/13006"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/media?parent=13004"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/categories?post=13004"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/blog\/wp-json\/wp\/v2\/tags?post=13004"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}