Dividend stocks are hardly the rage these days compared with faster-growing firms like Amazon.com (AMZN) and Netflix (NFLX).
“Dividends have been out of favor for 10 years now. But there will come a time when the pendulum swings back,” says Daniel Peris, portfolio co-manager of the $11 billion Federated Strategic Value Dividend fund (SVAAX).
A studious person who holds a doctorate in Russian history, Peris has penned two books on dividend investing: The Strategic Dividend Investor, published in 2011, and The Dividend Imperative, which came out in 2013.
Peris argues that companies should devote more capital to dividends. His most recent book is Getting Back to Business, a critique of modern portfolio theory.
While “there have been quarters or periods when dividend stocks have been popular,” that hasn’t lasted, he says.
Consider that the Utilities Select Sector SPDR exchange-traded fund (XLU) has a 10-year annual return of 9.26%, which trails the S&P 500 by more than three percentage points. Similarly, the Consumer Staples Select Sector SPDR ETF (XLP) has a 10-year annual return of just over 10%. Both utilities and consumer staples are popular places for dividend stocks.
“Cash flows are good, but nobody’s paying attention,” Peris says.
Peris urges investors interested in dividend stocks to stay the course. “As a consequence of [those stocks] being out of favor, the yield on our portfolios is near a five-year high. [And] the dividend growth rate is very, very strong. The two things that really matter to me are dividend growth and current yield.”
The strategic value dividend fund that Peris co-manages sports a 30-day SEC yield of 3.58%. As of June 30, its top holdings included Verizon Communication s (VZ), tobacco giant Altria Group (MO), and Duke Energy (DUK). They were recently yielding 4.4%, 5.2%, and 4.6%, respectively.
“We are getting those yields and dividend growth—this is going to be a very good year for dividend growth—from the usual suspects,” he says.
Those suspects include telecoms, tobacco companies, pharmaceutical outfits, and integrated energy firms.
The fund has a 10-year annual return of 8.3%, trailing its Morningstar category average by 1.4 percentage points.
|For more news you can use to help guide your financial life, visit our Insights page.|