Equities, not just low volatility, dividend back in the spotlight
Last week, we reported on the recovery of the Low Volatility factor, the result of the uncertainty in world stock markets at this particular stage in history. Today we resume the topic of factors, analysing the one concerning high-dividend stocks.
The chart above shows the performance of the Schwab U.S. Dividend Equity ETF (SCHD), which tracks high-dividend stocks listed on the U.S. stock exchange. We can see that since the middle of last year, the ETF has started to regain ground. The increased uncertainty in the markets has rekindled interest in the high dividend factor.
High-dividend companies tend to be well-established businesses with steady cash flows and low risk, often experience less volatility than growth stocks or more speculative sectors, and can be considered ‘safe havens’ in times of market turbulence.
The chart above shows the strength ratio between the US High Dividend Index and the Dow Jones. It can be seen that the indicator has risen sharply since the end of February as investors began to rethink their strategies in the face of rising market volatility.
The potential change in direction is particularly striking when we extend the time horizon to five years (chart above). We see the long bearish trend since mid-2022 and the repeated return above the 200-day moving average between the second half of 2024 and the last few weeks.
