Fears that the FED's expansionary monetary policy has come to an end and that interest rates will recover have particularly affected US high-dividend stocks: in the May-June period, characterized by the greatest fears about the end of Quantitative Easing, the MSCI USA “High Dividend” stock index returned 1,04% less than the generic MSCI USA.
Are we therefore facing the end of the favorable period for high dividend stocks?
Indeed, when interest rates rise, one may be led to think that investors looking for current income will switch from equities to more conservative bonds. But is it really so?
Before jumping to hasty conclusions, it is worth considering some numerical facts.
Analysis
First, a little historical perspective on the sources of stock performance: in the period 1871-2008, the total return of the US stock market depended for about 90% on dividends (source: SG Global Strategy). One thing to keep in mind…
Another interesting research, carried out by Ned Davies Research (and recently taken up also by the Wall Street Journal), analyzed the behavior of US stocks from January 1972 to June 2013 in various FED monetary policy regimes, distinguishing high dividend stocks from the others.
Results
The results that emerge from the graph have a very clear interpretation: over the last forty years the stocks capable of paying higher dividends have performed better than the others on average, regardless of the strategy adopted by the Fed.
These results should come as no surprise: high dividend stocks are often linked to solid companies, capable of generating and distributing profits on a regular basis over time. So, all things considered, dividends remain an "evergreen" equity theme, especially for those looking at investing from a medium to long-term perspective.
