Volatile U.S. markets boost appeal of dividend stocks

Often overlooked in favour of trendy growth names prior to the recent spike in consumer prices, the appeal of dividend payers has increased this year, as an aggressive Federal Reserve and inflation worries combine to batter stocks and bonds.

Overall, the S&P 500 is expected to post another quarterly dividend payment record over the third quarter, driven in part by increasing payouts from energy companies, after increasing 2.3% to $16.63 per share in the second quarter, data from S&P Dow Jones Indices showed. As “cash grows more valuable amid Fed hiking, we expect dividend yield and bird-in-the-hand strategies to continue to outperform” in the second half of the year, BofA strategists wrote earlier this month.

Not all investors are convinced that dividends are the best source of income. Strategists at BlackRock, the world’s largest asset manager, said in a webinar on Monday that they are focusing on short-term and investment grade credit over the second half of the year, given the rising chances of a recession.

The S&P 500 index pays a dividend yield of 1.52% overall, while some well-known dividend payers like materials company Amcor Plc – the largest weighting in the S&P 500 Dividend Aristocrats Index – pays dividend yields of 3.81%, compared with the 2.90% yield of the benchmark 10-year Treasury.

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