Why are dividend stocks attractive now? Why are dividend stocks attractive now? http://www.federatedinvestors.com/static/images/fii/fed-logo-amp.png http://www.federatedinvestors.com/daf\images\insights\video\bickenstaff-video-2-small.jpg July 15 2019 March 24 2019

Why are dividend stocks attractive now?

Portfolio Manager Deborah Bickerstaff describes where she's finding opportunities for dividends.
Published March 24 2019
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Views as of 3-24-2019 and are subject to change based on market conditions and other factors.

Video Transcript
Hi, I'm Debbie Bickerstaff. I'm a Vice President Portfolio Manager at Federated Investors.
Why are dividend stocks attractive now?
We believe dividend-paying companies are very compelling today, taking into consideration a few factors. First and foremost, from a valuation perspective, dividend companies have been painfully out of favor for the last 2 and a half years. If you take a look at what's really been driving the broad market total returns, you quickly see that over the last 2 plus years, information technology, consumer discretionary, 2 sectors that are rather hostile for the income collector have really accounted for the majority of the broad market performance. Stock prices have frankly gone nowhere. But really taking a look under the hood, dividend growth has really been quite robust through that period of time. So while investors were pursuing everything else, our companies have been able to steadily raise dividends over time. That when we look at valuations today, the dividend income that is available on the broad market, it's the highest it's been since 2010 I would submit. And this is after two robust years of dividend growth. So from a valuation perspective, certainly worth a second look. There after, macro considerations. There are those that believe we're late market cycle, and if that's the case, certainly an emphasis on companies that are delivering on those small ticket items, might be more supportive for a total return proposition, rather than counting on a growthy investment that may or may not work out. Beyond that also we've had Powell, the chairman of the Federal Reserve, indicate that interest rates are on hold for 2019. That strips out one area that does cause volatility, typically for dividend paying companies. If that's off to the side, that presents again one less headwind for dividend paying companies going forward.
In which sectors do you see opportunity for dividends?
We have a preference for those sectors that have mature companies that are in the phase of their own business model where they don't need all of the cashflow to plow back into the business for prospects of growth that may or may not materialize. We are seeking those companies that can operate with a generous payout ratio, that tend to deliver on the small ticket items of life that we continue to consume across the cycle. So it's going to be consumer staples with diapers and toilet paper. Or your utilities. We turn on a light every time we walk into a room. Now critically, I mention not all sectors are aligned with a generous dividend profile. That indicates that we really do struggle to find opportunity in the cyclical segments of the market. Those sectors that are dependent on where they're at in the market cycle for profitability. So our bottom up fundamental approach does create a natural avoidance to tech, consumer discretionary, industrials, materials, for example. So, we are diversified, just across the income producing segments of the market.
Views are as of 3/25/19, 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. 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. Past performance is no guarantee of future results. Federated Equity Management Company of Pennsylvania 19-40122 (4/19)
Tags Equity . Income .