In periods of elevated market volatility, investors ought to look to stocks that are growing their dividend for stability and fortitude instead of ones with only a higher yield.
A monthly analysis by BMO Capital Markets found that when implied volatility had been at above-average levels, a dividend strategy focused on growth and yield posted a typical yearly return of 4.1 per cent over a lack of 3.9 percent for that S&P 500. These stocks are required to see their earnings grow in a faster clip compared to overall market, that has occurred only a number of times within the last 15 years.
“Dividend growth strategies not only have offered higher average returns than yield-based strategies historically, they also did so with considerably less risk,” analysts at BMO wrote last Friday in a research note to clients. An increasing dividend is a key sign that the company has stable earnings and cash flow.
It turns out that these stocks perform very well in happy times, too, since dividend growth and yield stocks contain broad representation from cyclical areas. Some of BMO’s top chioces within the U.S. for dividend growth and yield include: Harley-Davidson Inc., Caterpillar Inc., Union Pacific Corp., Hasbro Inc. and MetLife Inc.
