Dividend strategies

Dividend investing is nothing new. Focusing on companies that pay and grow their dividend has helped deliver investors strong returns over time. Look to dividend strategies to seek income, growth and a degree of stability

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    BlackRock has a very strong equity income platform. It is both deep and broad. We have strategies that are both active and passive; we have strategies that focus on U.S. stocks as well as strategies that focus on international stocks, and then we also have strategies that focus on current income and ones that focus on dividend growth. Regardless of our client’s risk tolerances, or objectives, we have a product that can meet their needs.

    We are in a low rate environment, and so there are a lot of investors who have come into equity markets from the fixed income markets and have bid up the stock prices of some of the traditional bond proxies: stables, REETs, utilities if you will. Those elevated valuations create a degree of risk. Those bond proxies, they’re also behaving more like bond proxies than they ever have. So the correlations are really high at a time when interest rates are low and valuations are high. That spells risk. On the flipside, stocks that are growing their dividends have been neglected, almost left for dead and so what we see is a real big valuation gap with dividend growth stocks being significantly cheaper than high current yielders.

    I do believe that we are at the early innings of a reflationary environment, and this is where dividend growth stocks can be really helpful as compared to just high current yielders; the high current yielders, the bond proxies, those stocks are at risk when interest rates rise. Dividend growth stocks, historically, have been very resilient and actually have outperformed previously in periods of rising rates.

Why dividends matter today?

1Look for attractive returns
 We believe the market has overlooked dividend growers, which are trading at historically low valuations versus the S&P 500 Index, making them attractively priced

 

2Drive higher income
We’re in a unique period of time where you can get a higher yield in a portfolio of quality, dividend-growing stocks than you can from some fixed income markets

 

3Seek protection
Growing dividends above inflation targets have allowed dividend growers to mitigate purchasing power loss from inflation

 


Power of dividend growth

Risk and returns of the 500 largest U.S. stocks by dividend policy (1979–2016)*

Top number in each category represents growth of $100. Bottom number is a measure of risk represented by standard deviation.

Risk and returns of the 500 largest u.S. Stocks by dividend policy (1979–2016)

Source: BlackRock. Data from 12/31/1978 through 12/31/2016 The investment universe is the 500 largest U.S. stocks by market cap. Dividend policy constituents are calculated on a rolling 12-month basis and are rebalanced monthly. Category returns are calculated on a monthly basis. Shown for illustrative purposes only. Past performance is not indicative of future returns. The Dividend Growers & Initiators category (“Dividend Growers” in the chart) represents performance for companies which either increased or initiated their dividend distribution. The No Change category represents performance for companies which pay a dividend but have not increased nor decreased their dividend distribution. The Nonpayers category represents performance for companies which do not pay a dividend. The Dividend Cutters & Eliminators category (“Dividend Cutters” in the chart) represents performance for companies which either cut or eliminated their dividend distribution.