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Perspectives

Dividend Payers Continue to Outperform

by Fortem Financial July 12, 2022

In January 2022 we rebalanced our portfolios to reduce exposure to companies that had extended multiples and were paying little or no dividends. These equities are considered long-duration equities because they will grow into their stock pricing multiples over an extended time period. These companies' stock performance have a history of being very volatile in times of economic slowing and high inflation.

In January, we added a number of companies to our portfolio that better met the attributes of short-duration equities. Companies with low multiples, great free cash flow, good dividend payouts, and the expectation that those companies would also increase their dividends in the near future. In May 2022, we rebalanced the portfolio again to add more short-duration equities to the portfolio to assist in weathering the volatility we have been seeing in the markets due to recession risks and inflation concerns.

Today, we want to give you a little history on higher dividend paying stocks and how they help to reduce portfolio volatility in volatile economic times.

Great Dividend Payers Outperform
Dividend payers have continued to outperform compared to their non-dividend-paying peers and have now returned to the levels they were before Covid. With uncertainty higher over the coming months as inflation remains high and the Fed continues along its tightening cycle, these companies should continue to do well. Therefore, we remain in favor of short-duration equities.

S&P 500 Dividend Payer Relative Non-Payers

Over Extended Periods, Dividend Growers Have Outperformed
As we discussed previously, our bias is towards short-duration equities, which has also proven itself over time. Over the last 30+ years, companies growing their dividend have seen the strongest annualized returns versus other dividend strategies. With an annualized return of 11.8%, dividend growers have a nearly 1% greater annualized return over the next best dividend strategy.

Annualized Return of Dividend Strategies

And Dividend Growers Have Experienced Less Volatility
At the same time, dividend growers have achieved strong returns while seeing less volatility. The annualized standard deviation of the dividend growers since 1990 is 15.1%, more than 3% lower than any of the other three dividend policies. Conversely, those companies that pay no dividend have seen the highest volatility at 22.1%. Overall, dividend growers have been able to provide stronger returns with less volatility, a desirable combination.

Standard Deviation

Source: Strategas

Sincerely,

Fortem Financial
(760) 206-8500
team@fortemfin.com

 

Brian Amidei, along with Partners Joseph Romano and Brett D'Orlando have also been named *2014, 2015, 2016, 2017, 2018 Five Star Wealth Managers!

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The Five Star Wealth Manager award is based on 10 eligibility and evaluation criteria: 1) Credentialed as an investment advisory representative (IAR) or a registered investment advisor; 2) Actively employed as a credentialed professional in the financial services industry for a minimum of five years; 3) Favorable regulatory and complaint history review; 4) Fulfilled their firm review based on internal firm standards; 5) Accepting new clients; 6) One-year client retention rate; 7) Five-year client retention rate; 8) Non-institutionalized discretionary and/or non-discretionary client assets administered; 9) Number of client households served; and 10) Educational and professional designations. The inclusion of a wealth manager on the Five Star Wealth Manager list should not be construed as an endorsement of the wealth manager by Five Star Professional or the magazine. The award methodology does not evaluate the quality of services provided. Additional information about this award is available at: fivestarprofessional.com/2016FiveStarWealthManagerMethodology.pdf
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