Adam Phillips, a portfolio manager at Torrance, California-based RIA EP Wealth Advisors, says he’s gotten numerous emails and calls over the past year from fund issuers pitching dividend-paying strategies.
“We have not taken the bait,” he said, who noted growth stocks “aren’t going anywhere,” particularly if interest rates have peaked.
He’s not the only one avoiding the sector. Just $786 million has flowed into dividend ETFs so far this year, the smallest haul since 2006, according to Bloomberg Intelligence.
To be sure, the ability to consistently pay a dividend over a long time-span is often a hallmark of a company’s stability. Take the S&P 500 Dividend Aristocrats index, which comprises S&P 500 members that have raised dividends for at least 25 consecutive years. While trailing its namesake benchmark, it’s beaten nearly every US active manager over the past decade.
“Raising your dividend for 25 plus years is no easy feat,” said Rupert Watts, head of factors and dividend indices at S&P Dow Jones Indices. “These are high quality companies.”
Versus the S&P 500’s total return, however, that index has unperformed on a six-month, one-year, 5-year and 10-year intervals.
Sam Huszczo, founder of RIA SGH Wealth Management, is constantly pushing back against his clients’ requests for dividend strategies. His average client is 65 years old and finds comfort in the cash flow dividend strategies offer.
“It’s the perception that, well at least if I get 3% in a dividend ever year, I’m getting something out of this thing,” said Huszczo. “But that’s too short-sighted of a perspective, because if the price appreciation is worse because you’re getting something that has no ability to grow, you’re not getting the full value of of those stocks compared to other places in the market.”
Meanwhile, bonds are offering some of the highest interest rates in decades, presenting investors with a more reliable stream of income than dividend funds. Ultra-short bond ETFs have pulled in $30 billion this year after hauling a record $42 billion in 2022.
This article was provided by Bloomberg News.