Not much worked for clients in financial markets in 2022 – point proven by the S&P 500 notching its seventh-worst annual performance since the Great Depression.
Bonds didn’t fare much better as the Bloomberg US Aggregate Bond Index slumped to its worst yearly showing since inception in 1976. However, dividend stocks and the related funds were among last year’s bright spots. That’s a particularly important point when considering inflation soared and bond yields spiked in 2022.
On the dividend front, there’s more good news for advisors. Payout growth is likely to be appealing to a broad swath of clients because it’s one of the strategies with the best inflation-fighting credentials over the long haul.
“Dividend payers may not be top-of-mind for investors seeking high risk-adjusted returns, because the last decade hasn’t been kind to them,” according to AllianceBernstein research. “Over seven of the last 10 years through 2021, the MSCI USA High Dividend Yield Index and the FTSE High Dividend Yield Index underperformed the S&P 500. High-dividend payers are often seen as old, stodgy companies, like utilities or food manufacturers, with limited growth potential. As investors flocked to high-flying technology and internet growth companies, dividend stocks seemed like antiquated investment options.”
2022 Dividend Data Is Attractive
For advisors with clients that need some dividend convincing or want more exposure to payout instruments, the data is on their side, including a $14.6 billion fourth-quarter increase in dividends among domestic common equities.
“For all of 2022, the net dividend rate increased $68.2 billion, compared to the net $69.8 billion in 2021. Increases were $82.5 billion versus $78.6 billion, and decreases were $14.3 billion compared to $8.8 billion in 2021. Excluding AT&T's $6.9 billion reduction in Q1 2022, associated with its WarnerMedia spinoff, the 2022 decreases have been $7.4 billion, a 16.1% decline from 2021,” notes S&P Dow Jones Indices.
As advisors know, not all dividend payers are created equal. This is something not all clients are cognizant of, meaning this is a credible value-add conversation. Acknowledging that not all dividend-paying firms are the same is critical in inflationary environments because clients need income AND exposure to companies and strategies that thrive when consumer prices surge, as is happening today.
In cash terms, domestic dividends hit a new record in the final three months of 2022 and for the whole year.
“S&P 500 dividend payments have increased for 13 consecutive years, and set a payment record for the last 11 consecutive years,” adds S&P.
Good News Awaits in 2023
As is frequently said, past performance isn’t a guarantee of future returns, but there is precedent with dividends in that growth often begets more growth. In what amounts to good news for clients, more payout growth is likely to arrive this year.
“2023 appears set for another record payment, with the key question being by how much as the answer may depend on the state of the economy and corporate profits, concluded Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices. “The uncertain forecast for 2023 dividend payments is also driven by several factors including changes in inflation, interest rates, and consumer spending. Overall, it is clear that companies are currently protecting their dividends, even if it means reducing buybacks.”
That’s good news for clients at a time when inflation is high and bonds are expected to remain volatile for some time.