Dividends Aren’t Dead
|By Jim Nelson
They were just on hiatus …
For more than 100 years, dividend-paying stocks ruled Wall Street. An old — and highly referenced — study by the famous Robert Shiller shows that 80% of all S&P 500 stock returns came from reinvested dividends.
This was just the way it was. For large companies to not pay a dividend used to signal some kind of problem … a weakening outlook or a frivolous management team, who would rather invest in wasteful ideas.
This thinking has been tested more and more throughout the past few decades. During the Dot-Com Boom, dividend stocks were left behind for high-flying internet names.
A small resurgence came in the wake of the Financial Crisis more than a decade ago, as investors fled from riskier names.
But since then, low interest rates and rapid technological advancements took center stage. 20 years ago, Exxon Mobil (XOM) was clearly — and dominantly — the largest public company in the world. It paid a substantial dividend every year. Today, all seven of the so-called Magnificent Seven could buy up this legacy oil driller with their pocket change.
And the old thinking goes, tech companies need their money more to stay ahead of the innovation curve. They shouldn’t pay dividends.
In fact, of the “Mag 7,” only three paid dividends over the last year, if you can call them dividends. The biggest payer is Microsoft (MSFT) with its 0.72% dividend yield. Nvidia (NVDA), the darling of Wall Street, trades at $715 per share and pays just 12 cents per year. That’s a 0.02% dividend yield.
This could be changing, though for income investors not fast enough. Meta Platforms (META) — another member of the Mag 7, announced along with a wildly successful quarterly earnings report that it would begin paying a dividend. That makes four out of the seven. The bad news: It is going to only pay 50 cents per quarter, which represents a yield of just 0.42%.
Not only is this sadly small for income investors … it is actually considered bad news by tech investors.
Take a look at this headline from the Wall Street Journal this week:
In our opinion, it IS good news that Meta joined the club, if feebly, however. More than 80% of S&P 500 companies do still pay, though in smaller amounts than they used to.
If technology stocks do correct, as some on our team thinks is likely, the ones that pay might fair better than the rest.
And if bonds continue to come back after a few terrible years, dividend income could come back into the spotlight.
Finally, remember that brief resurgence during the Financial Crisis? That came primarily because of failing banks and real estate sending volatility through the roof. As you’ll see below, banks aren’t out of trouble this time around either.
We’ve said it before: 2024 could see more volatility than we’ve had recently.
This is all good news for dividend-paying stocks. They aren’t dead just yet. When Mark Zuckerberg decides to join the club and investors get scared, you’ll want some of these low-volatility winners in your portfolio.
Let’s see what our experts had to say this week …
We rate tens of thousands of stocks, ETFs, mutual funds, cryptos, insurance companies and banks. Our Director of Research & Ratings Gavin Magor explains how a few of these differ, especially in light of the recent problems at New York Community Bank.
Stock prices matter, but not always in the way many think. A high-priced stock doesn’t always mean an overpriced stock … and vice versa. Gavin digs into why some stocks have prices in the thousands AND why they are still worth looking into.
In these days of AI and quantum computers, the demand for cybersecurity will only increase from here, not lessen. Our supercycles expert Sean Brodrick breaks down this fast-growing industry AND the best, easiest way to play it.
With AI development and utilization soaring out of control, a lot of pressure is being put on cloud access. The amount enterprises are spending on cloud services is growing at a wild rate. Fortunately, our tech guru Jon Markman has the perfect play to take advantage. And it isn’t Oracle (ORCL)!
The introduction and immediate success of several new diabetes and weight-loss drugs has completely reshaped whole industries already. Senior Investment Writer Karen Riccio has the scoop on where the next huge profits from this breakthrough will come from.
That’s it for this week. Whether you are a football fan or not, as always …
Enjoy your weekend,
Managing Editor, Weiss Ratings Daily