Dividend Growers Might Steal the Baton

Advice to the Advisors

Dividend Growth Stocks | Potential to Take the Baton as Leaders | Sheaff Brock Institutional Group

Dividend Growers Might Steal the Baton

As advisors, having watched our clients move through the “banana peel” month of September and the “jinx month” of October, months known for stock market price drops, it’s crucial for us to prevent volatility-induced panic selling, keeping our investors’ vision focused on the months—and years—to come.

Sheaff Brock Managing Director Dave Gilreath is doing just that. “Dividend growth stocks could become the leaders,” he predicts, “taking the baton from growth stocks.” Even assuming that growth in our economy slows to a sustainable 3%+ rate in 2019, he says, that is still a “golden backdrop” for equities. Why? That growth rate would imply:

  • a stable dollar
  • low inflation
  • low interest rates
  • full employment

What that scenario could also imply, Gilreath explains, is “a grand shift from market-leading pure growth stocks to blue-chip dividend growth stocks in 2019.”

Of course, “high dividend stocks appeal to many investors living off dividends in retirement because their high yields provide generous income,” as simplysafedividends.com observes. And why, exactly is it, that some dividend-paying stocks offer much higher yields than others? There are several possible answers, the authors explain:

  • a high yield reflects a company’s mature status (think utilities and telecom companies).
  • some companies, REITs for example, have unique business structures that require them to distribute cash flow to investors.
  • some stocks use financial leverage to magnify profits.

Dividend Aristocrats are companies in the Standard & Poor’s 500-stock index that have hiked their dividends every year for at least 25 consecutive years, writes Dan Burrows in Kiplinger.com. In the event of rate hikes, dividend stocks with a history of consistently growing their dividends have historically tended to perform well and exhibit less volatility.

Another factor favoring dividend stocks is what U.S. News calls the “flood” of baby boomers entering retirement, especially “after nine years of historically low interest rates that punished conservative investors and savers.”

The Sheaff Brock Dividend Growth & Income portfolio strategy perfectly embodies all these factors favoring dividend growth stock investing, Gilreath explains, consisting of up to 25 quality American stocks that:

  1. have a history of paying dividends
  2. have a history and an outlook to increase their dividends
  3. have the opportunity for capital appreciation

“If you plan on living for another 10, 20, or 30 years, Treasury yields won’t cut it. But great dividend stocks will give investors both vital characteristics: income and long-term growth.”

Share this post