Despite numerous challenges, stocks have performed well so far this year. The S&P 500 is up about +8%, the Dow has risen +2%, and the tech-heavy Nasdaq is the biggest winner with a gain of +19%. However, this rally is largely driven by a handful of tech giants that began reporting earnings last week.
The earnings season so far has been better than many expected. Recent results reported by the largest banks in the country revealed that those companies are doing quite well, despite recent turbulence in the industry, and they in fact benefitted from the crisis.
Big banks are more heavily regulated than smaller banks and are required to maintain higher regulatory capital and liquidity requirements. However, small and mid-sized businesses generally bank with smaller local and regional banks. If small businesses find their access to bank credit restrained, it could hurt the economy, as they do not have access to many other sources of financing.
US consumers have remained resilient so far and their spending had rebounded early this year. The housing market was also showing some signs of stabilizing as interest rates eased a bit. However, if businesses and consumers pull back activity, it could itself cause an economic contraction.
Small and medium-sized banks provide the majority of commercial real estate loans (80%), residential real estate loans (60%), and commercial and industrial loans (50%), according to Goldman Sachs research. Their commercial real estate portfolios face a lot of risks due to rising vacancies, falling property values, and higher interest rates.
While the Fed is now expected to pause its interest rates hiking campaign soon, the lagging effects of the aggressive monetary tightening are yet to be fully seen. Further, while inflation has started cooling, it is still expected to stay at elevated levels in the coming months.
Some Fed officials have suggested that the central bank will keep rates at high levels for longer to tame inflation. Many economists expect a recession, though a mild one, later this year. The downturn could be deeper if the rates stay higher for longer.
Recent economic reports suggest slowing growth. Tight financial conditions and a slowing economy do not bode well for corporate earnings growth.
In this uncertain environment, it makes sense to invest in high-quality dividend paying companies with solid balance sheets and stable cash flows. In fact, investors have continued to pour money into dividend focused ETFs amid market turbulence.
Among dividend investments, I prefer dividend growing stocks and ETFs to high dividend payers. Dividend growing companies are high-quality companies that outperform the broader market on a risk-adjusted basis over the long term.
Continued . . .
------------------------------------------------------------------------------------------------------
See Zacks’ Top Dividend Growth ETFs
You are invited to download the just-released briefing that names 3 exceptional ETFs that leverage the performance of hundreds of dividend-raising companies. These ETFs target significant long-term gains, provide stability during uncertain market conditions, and pay healthy yields every quarter.
Access your copy of this brand-new briefing right away and get in position to receive your next dividend payouts.
Opportunity ends at midnight Thursday, May 4.
See ETFs Now >>
------------------------------------------------------------------------------------------------------
Why Dividends are Important
Total return of stocks comprises price appreciation and dividends. According to S&P Dow Jones Indices, almost 1/3rd of the annualized total return of the S&P 500 came from dividends from January 1926 through March 2023.
Despite providing a substantial portion of stocks’ total return, dividends do not get the kind of attention they deserve. In fact, analysts and investors spend way more time trying to forecast revenues and earnings than they do to payouts.
While share buybacks are another way companies use to return capital to shareholders, share buybacks are not steady like dividends. Companies can announce a new share repurchase program or put the existing one on hold anytime, but dividend cuts are rather uncommon as they are seen as indicators of serious cash flow problems.
Why Focus on Companies with Growing Dividends
Dividend growth companies usually have solid balance sheets and strong cash flows. Therefore, dividend focused strategies provide stability and downside protection during market downturns, in addition to stable income payments. These companies often have sustainable competitive advantages or “moats’ and are likely to reward their shareholders over the long term.
Dividend Payments Continue to Rise
Total aggregate dividend payout by the S&P 500 companies reached $564.6 billion in 2022, up from $511.2 billion in 2021, despite continued market turbulence, according to S&P Dow Jones Indices. Q1 2023 cash dividends were up +7.9% over Q1 2022. For the 12-month period ending in March 2023, S&P 500 dividends were up +10.1% from the March 2022 period.
The index provider expects dividend payments to continue at record levels this year as well. However, “the size of the increases have declined and are expected to remain modest for the year as concerns over decreased consumer spending and an economic slowdown have increased."
Dividend Growth ETFs Worth Looking Into Today
In the current market environment, there are 3 recommendations I believe investors should consider. They not only provide a stable income stream that grows over time but also:
-- Target consistent outperformance by investing in hundreds of high-quality companies that have increased yields for 5 years or longer
-- Provide stability and minimize downside risk by diversifying across multiple sectors
-- Help you keep more of your gains to yourself with low fees (8 basis points or less)
These 3 ETFs are some of the most promising picks inside my ETF Investor portfolio.
ETF Investor is designed to provide a smooth ride to profits, and it’s doing exactly that. Current holdings are up as much as +103%, +130%, even +266%. In all, there are 15 positions in the portfolio that are up by double- and triple-digit percentages.
And you can see all of our picks – including the 3 dividend growing ETFs highlighted above – for just $1. See our top ETF recommendations here.
Bonus Report: When you sign up today, you'll also get the latest version of our 5 Stocks Set to Double report. This report features 5 stocks our editors believe have the best chances of climbing +100% or more in the coming months.
Previous editions of this report have given readers a chance at spectacular returns like +143.0% on Boston Beer Co., +498.3% on Weight Watchers, and +673% on Tesla.¹
I encourage you to take advantage now. The opportunity to download the just-released 5 Stocks Set to Double report ends midnight Thursday, May 4.
Get started now with ETF Investor and 5 Stocks Set to Double >>
All the Best,
Neena Mishra
Neena Mishra, CFA, FRM is the Director of ETF Research for Zacks Investment Research. She manages Zacks ETF Investor portfolio.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.
Image: Bigstock
A Little-Known Path to Consistent Outperformance
Despite numerous challenges, stocks have performed well so far this year. The S&P 500 is up about +8%, the Dow has risen +2%, and the tech-heavy Nasdaq is the biggest winner with a gain of +19%. However, this rally is largely driven by a handful of tech giants that began reporting earnings last week.
The earnings season so far has been better than many expected. Recent results reported by the largest banks in the country revealed that those companies are doing quite well, despite recent turbulence in the industry, and they in fact benefitted from the crisis.
Big banks are more heavily regulated than smaller banks and are required to maintain higher regulatory capital and liquidity requirements. However, small and mid-sized businesses generally bank with smaller local and regional banks. If small businesses find their access to bank credit restrained, it could hurt the economy, as they do not have access to many other sources of financing.
US consumers have remained resilient so far and their spending had rebounded early this year. The housing market was also showing some signs of stabilizing as interest rates eased a bit. However, if businesses and consumers pull back activity, it could itself cause an economic contraction.
Small and medium-sized banks provide the majority of commercial real estate loans (80%), residential real estate loans (60%), and commercial and industrial loans (50%), according to Goldman Sachs research. Their commercial real estate portfolios face a lot of risks due to rising vacancies, falling property values, and higher interest rates.
While the Fed is now expected to pause its interest rates hiking campaign soon, the lagging effects of the aggressive monetary tightening are yet to be fully seen. Further, while inflation has started cooling, it is still expected to stay at elevated levels in the coming months.
Some Fed officials have suggested that the central bank will keep rates at high levels for longer to tame inflation. Many economists expect a recession, though a mild one, later this year. The downturn could be deeper if the rates stay higher for longer.
Recent economic reports suggest slowing growth. Tight financial conditions and a slowing economy do not bode well for corporate earnings growth.
In this uncertain environment, it makes sense to invest in high-quality dividend paying companies with solid balance sheets and stable cash flows. In fact, investors have continued to pour money into dividend focused ETFs amid market turbulence.
Among dividend investments, I prefer dividend growing stocks and ETFs to high dividend payers. Dividend growing companies are high-quality companies that outperform the broader market on a risk-adjusted basis over the long term.
Continued . . .
------------------------------------------------------------------------------------------------------
See Zacks’ Top Dividend Growth ETFs
You are invited to download the just-released briefing that names 3 exceptional ETFs that leverage the performance of hundreds of dividend-raising companies. These ETFs target significant long-term gains, provide stability during uncertain market conditions, and pay healthy yields every quarter.
Access your copy of this brand-new briefing right away and get in position to receive your next dividend payouts.
Opportunity ends at midnight Thursday, May 4.
See ETFs Now >>
------------------------------------------------------------------------------------------------------
Why Dividends are Important
Total return of stocks comprises price appreciation and dividends. According to S&P Dow Jones Indices, almost 1/3rd of the annualized total return of the S&P 500 came from dividends from January 1926 through March 2023.
Despite providing a substantial portion of stocks’ total return, dividends do not get the kind of attention they deserve. In fact, analysts and investors spend way more time trying to forecast revenues and earnings than they do to payouts.
While share buybacks are another way companies use to return capital to shareholders, share buybacks are not steady like dividends. Companies can announce a new share repurchase program or put the existing one on hold anytime, but dividend cuts are rather uncommon as they are seen as indicators of serious cash flow problems.
Why Focus on Companies with Growing Dividends
Dividend growth companies usually have solid balance sheets and strong cash flows. Therefore, dividend focused strategies provide stability and downside protection during market downturns, in addition to stable income payments. These companies often have sustainable competitive advantages or “moats’ and are likely to reward their shareholders over the long term.
Dividend Payments Continue to Rise
Total aggregate dividend payout by the S&P 500 companies reached $564.6 billion in 2022, up from $511.2 billion in 2021, despite continued market turbulence, according to S&P Dow Jones Indices. Q1 2023 cash dividends were up +7.9% over Q1 2022. For the 12-month period ending in March 2023, S&P 500 dividends were up +10.1% from the March 2022 period.
The index provider expects dividend payments to continue at record levels this year as well. However, “the size of the increases have declined and are expected to remain modest for the year as concerns over decreased consumer spending and an economic slowdown have increased."
Dividend Growth ETFs Worth Looking Into Today
In the current market environment, there are 3 recommendations I believe investors should consider. They not only provide a stable income stream that grows over time but also:
-- Target consistent outperformance by investing in hundreds of high-quality companies that have increased yields for 5 years or longer
-- Provide stability and minimize downside risk by diversifying across multiple sectors
-- Help you keep more of your gains to yourself with low fees (8 basis points or less)
These 3 ETFs are some of the most promising picks inside my ETF Investor portfolio.
ETF Investor is designed to provide a smooth ride to profits, and it’s doing exactly that. Current holdings are up as much as +103%, +130%, even +266%. In all, there are 15 positions in the portfolio that are up by double- and triple-digit percentages.
And you can see all of our picks – including the 3 dividend growing ETFs highlighted above – for just $1. See our top ETF recommendations here.
Bonus Report: When you sign up today, you'll also get the latest version of our 5 Stocks Set to Double report. This report features 5 stocks our editors believe have the best chances of climbing +100% or more in the coming months.
Previous editions of this report have given readers a chance at spectacular returns like +143.0% on Boston Beer Co., +498.3% on Weight Watchers, and +673% on Tesla.¹
I encourage you to take advantage now. The opportunity to download the just-released 5 Stocks Set to Double report ends midnight Thursday, May 4.
Get started now with ETF Investor and 5 Stocks Set to Double >>
All the Best,
Neena Mishra
Neena Mishra, CFA, FRM is the Director of ETF Research for Zacks Investment Research. She manages Zacks ETF Investor portfolio.
¹ The results listed above are not (or may not be) representative of the performance of all selections made by Zacks Investment Research's newsletter editors and may represent the partial close of a position.