This year has not been the year for stocks so far. The S&P 500 is down 16%, while the Nasdaq Composite performed even worse and fell 25% so far. But there is a shelter from the storm: Dividend stocks:
– The iShares Core High Dividend ETF (NYSE: HDV) is up 4% year to date.
– The SPDR Portfolio S&P 500 High Dividend ETF (NYSE: SPYD) is up 2.8%.
– The WisdomTree U.S. High Dividend Fund (NYSE: DHS) has gained 4.6% year to date.
It is not a surprise that stocks paying strong dividends do not only outperform this market but are still positive for the year, despite the market’s heavy losses. The dividends received act as a nice cushion. So, when markets are diving south, dividends can offset some of those losses. But the markets are currently down far more than 4%, so it’s not just the dividends that have led to positive returns. These stocks are actually going up in price despite the poor overall market.
Entering this year, dividend stocks were dirt-cheap. Everyone was focused on growth stocks and finding the next high-flying tech stock and mature companies with excellent cash-flow had been ignored. As markets tumbled, high-flying growth stocks had much further to fall than value stocks.
Long-term investors should use the recent sell-off to accumulate their favourite dividend payers cheaply. Strong dividend-paying companies offered shelter in these extremely stormy conditions and weather the storm.
Sven Franssen