Hi I'm Jared Hoff, Portfolio Manager at Federated Investors.
How can dividends help dampen market volatility?
Federated's outlook on the market remains constructive, but I think there are plenty of sources of potential volatility ahead, from global trade uncertainty to geopolitical issues, and, of course, the potential for slower growth. Maybe a simple way to sum up the Strategic Value team's view on navigating periods of volatility is to quote Bear Bryant. He famously said, 'Offense sells tickets, but defense wins championships.'
When the market goes up in a straight line, it pays to play offense. High-beta, growth-oriented, low-dividend stocks have tended to outperform in that period of risk-on environment. And we've seen a lot of that in the last three years. But in more volatile periods, dividend stocks have provided better defense, better durability for the nest egg. Stock prices rise and fall, but when investors receive a dividend that's bankable, sustainable and repeatable, their total returns tend to be less volatile than the returns provided by the broad market or by stocks that don't pay any dividend.
Views are as of 10/21/19, and are subject to change based on market conditions and other factors. These views should not be construed as a recommendation for any specific security or sector. Past performance is no guarantee of future results. There are no guarantees that dividend paying stocks will continue to pay dividends. In addition, dividend paying stocks may not experience the same capital appreciation potential as non-dividend paying stocks. Stocks are subject to risk and fluctuate in value. Principal loss is possible. Beta analyzes the market risk of an investment by showing how responsive it is to the market. Usually the higher betas represent riskier investments. Federated Equity Management Company of Pennsylvania 19-30141 (10/19)