Overlooked during the latest market rally, dividend stocks are coming back into fashion with investors.
U.S. stock dividends are forecast to hit record highs this year, Matt Peron, director of research at Janus Henderson said in an interview. Strong earnings from companies, especially those in the financial, technology and healthcare sectors, are driving the growth, according to Janus data.
Market volatility is on the rise, with equities stumbling from record highs and bonds continuing to offer relatively low yields. Dividends can work as a "life-saving parachute," said Terri Spath, founder and chief investment officer with Zuma Wealth.
"The safety of a blue-chip, dividend-paying stock cannot be underestimated in a period where the luster is off high-flying technology stocks and bonds are losing propositions."
Peron said Janus is expecting stocks that pay large dividends will become increasingly popular with investors. "It happens every cycle," the analyst said.
Big payouts in 2021
In 2021, the U.S. stocks in the Janus Henderson Global Dividend Index paid out a record $522.7 billion in dividends, up 3.5% from 2020 and up 28.6% since 2015. Microsoft Corp., AT&T Inc., Exxon Mobil Corp. and Apple Inc. issued the most in dividends in 2021, according to Janus.
Dividend payments from U.S. stocks in the index, which measures dividends from the largest 1,200 companies in the world by market capitalization, are forecast to rise to $562 billion in 2022, up 7.5% from 2021.
Annual cash dividends for companies in the S&P 500 reached $511.2 billion in 2021, up 5.8% from 2020, when dividends for stocks on the large-cap index was $483.2 billion, according to S&P Dow Jones Indices. Dividends have more than doubled since 2007 when annual payouts were $246.6 billion.
Annual cash dividends per share averaged $60.40 in 2021, up from $58.34 per share in 2020 and $27.73 per share in 2007.
Dividend payments for S&P 500 stocks are expected to increase by about 5% in 2022, according to Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, a division of S&P Global.
Attractive alternative
This increase in dividend payments will be attractive to investors faced with an S&P 500, which declined 8% from Dec. 31, 2021, through March 2, 2022, after climbing 26.9% in 2021, said Zuma's Spath.
Due to geopolitical uncertainty surrounding Russia's invasion of Ukraine and the Federal Reserve's plans to impose rate hikes to combat soaring inflation, the Chicago Board Options Exchange Volatility Index settled at 33.3 on March 1, its highest settlement since January 2021. The index, also known as Wall Street's "fear gauge," is a measure of stock market volatility expectations based on S&P 500 index options.
As market volatility increases so typically does interest in dividend stocks, said Ryan Fause, a principal with Withum Wealth Management.
"Stocks that pay rent will grow when markets do well but offer the comfort of income during volatile or even negative times," Fause said.
Standout sectors
The growth in dividends has not been equal across sectors, according to Janus Henderson. Dividend payments from financials and technology have risen by roughly 60% since 2015, while dividends from the healthcare sector rose nearly 70%. Meanwhile, dividends from oil, gas and energy, industrials, and communications and media have remained relatively flat over that time.
In addition, some companies, primarily in the travel sector, are still struggling to overcome the impacts of the global pandemic and have curtailed or eliminated their dividends. Walt Disney Co. and The Boeing Co. have yet to reinstate their dividends.
"They're not out of the woods yet," Janus' Peron said.