2 months ago • 2 mins
High-dividend stocks haven't been having the best time lately. Just look at the S&P 500 high dividend index: it tracks 80 high-yield-paying companies and it’s down 13.5% this year, while the overall S&P 500 is up 12.1%. But there’s good reason for this. Some of it has to do with the gap between dividend payouts and what you can get from super-safe Treasury bonds. See, for a while, interest rates were superlow and stocks – especially ones that pay high dividends – seemed like the only game in town if you wanted an investment with a little bit of payout.
Of course, that all began to change last year when central banks, including the US Federal Reserve, started raising interest rates in an attempt to beat down some excessively hot inflation. Those rate hikes pushed up the returns you could get from those safe-as-houses Treasury bonds, sending them to a 15-year high above 5%. Suddenly, investors had choices: they could get decent returns from low-risk stuff like cash deposits or Treasury bonds.
But now, some folks believe the tide may be turning. They figure the Fed is probably close to wrapping up its rate-raising spree, which would make those dividend-paying stocks look appealing again, especially since they've been lagging behind all year.
And that could be cool. When times get tough, companies that pay out nice dividends, like those in the consumer staples, utilities, and telecom sectors, tend to do pretty well. Even in a milder slowdown, dividend-paying firms in areas like finance and energy, where the stock prices aren't super expensive, could also come out on top. Some interesting high-quality names that have sold off this year include Estée Lauder, Dollar General, International Flavors & Fragrances, and Pfizer. Alternatively, you could go for the Capital Group Dividend Value ETF (ticker: CGDV; expense ratio: 0.33%), the iShares Core High Dividend ETF (HDV; 0.08%) or the Invesco S&P Ultra Dividend Revenue ETF (RDIV; 0.39%).
Disclaimer: These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment advisor.
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