In an effort to lure income investors, energy firms have aggressively boosted dividends over the last 12 months. Diamondback Energy Inc. increased its payout 412 per cent in the span, the most of any S&P 500 member. Five of the index’s 10 biggest dividend boosts have come from the energy sector, including APA Corp.’s 355 per cent hike, Pioneer Natural Resources Co.’s 276 per cent raise and Halliburton Co.’s 167 per cent increase.
“In a recession, I want to see the cash,” Energy Income Partners Chief Executive Officer James Murchie said, adding that his investment firm was launched during the bursting of the dot-com bubble because investors were seeking “real income and real assets.” He expects the same dynamic to play out in a potential recession in 2023, driving equity positioning in dividend-paying stocks in energy and utilities.
Investors tend to rush into dividend-paying stocks in a recession in search of cash while the economy crashes around them and dollars are harder to earn. But investors should look deeper and screen companies for free cash flow, rather than dividends, if they’re looking for reliable income streams through a recession, SPEAR Invest’s Ivana Delevska said.