Some investors are giving the shares of dividend-rich companies a second look as expectations grow that the Federal Reserve is nearing the end of a rate-hiking cycle that has lifted bond yields to their highest level in nearly two decades.
“The 5% you’re getting from Treasuries looks to be transitory and that will take some pressure off of these sectors competing for yield,” said Jurrien Timmer, director of global macro at Fidelity Investments. “The dividend-paying value side of the market is a pretty compelling place to go to maintain that return.”
Meanwhile, 44% of global fund managers polled by BoFA Global Research said they now expect high-dividend stocks to outperform those that pay low dividends, a nine percentage-point increase from the previous month. Companies have increased their payouts by an average of 9.1% so far in 2023, compared with 11.8% in the same time last year, while 14 companies have either suspended or lowered their dividends since the start of the year, up from four a year ago, the firm’s data showed.
Another reason for dividend payers’ appeal is a broadening of the market’s rally from the cluster of huge tech and growth stocks that led gains for most of the year into other areas. The S&P 500 energy and financials sectors are up 5.7% and 5.6% this month, respectively, compared with a 2.5% gain for the broader index.
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