Op-Ed: Is this the beginning of the end for dividend ETFs (and stocks)? Hardly.

John Robinson |
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Stock Market
Financial Advice
Financial Planning Hawaii

Op-Ed: Is this the beginning of the end for dividend ETFs (and stocks)? Hardly.

The U.S. stock market has experienced bouts of downside volatility in recent years. While no one ever seems to fret too much about upside volatility, for some reason, the downside kind seems to make investors’ stomachs churn. 

Not much has changed in the interim, but one additional point that is worth mentioning is that dividend stocks – a staple in some FPH client portfolios – have, as a group, been taking it on the chin harder than some other broad sectors of the stock market.

Indeed some of our perennial favorite “rising dividend” companies (companies that have demonstrated a predilection toward increasing shareholder dividend payments each year) are down 30% or more from their 52-week highs. These include s well-known names in energy, railroads, technology, and manufacturing companies, particularly those manufacturers with significant revenue ties to China.

The primary impetus for dividend stocks (and ETFs) falling into disfavor seems to be the prospect of rising interest rates. For the past several years, investors who were starved for income from bonds and CDs have flocked to higher yields on dividend stocks. Although interest rates have only budged nominally higher, some investors are apparently finding that the intestinal fortitude required to hold even “blue chip” stocks may be greater than what they had bargained for. For more on this topic, see the following articles:

Fight those Fed fears and stick with dividend investment (Investment News)

Yield Rally: A Mischievous Term With a Kernel of Truth (Financial Planning)

To be clear, consistent with the theme in my August 26th commentary, FPH clients should not expect any change in guidance regarding rising dividend stocks. Rising dividend stocks tend to be large, financially sound companies that have weathered economic downturns before. Investing in them is not a new concept, but one that has demonstrated its merits to investors over many decades.

As per the Warren Buffett quote in the Special Report, “The stock market is a device for transferring wealth from the impatient to the patient.” I believe this concept applies to the recent exodus from dividend stocks. Depending upon individual client circumstances, I may be inclined to suggest selectively looking for opportunities to "buy low".

See Also:
On the Hunt for Rising Dividends (Bloomberg)


The Biggest Dividends Aren’t Necessarily the Best (NY Times)


Stocks That Pay Rising Dividends (Kiplinger’s)


Not enough income to retire? Dividends can help (USA Today)

The opinions expressed herein are solely those of the author and may not reflect the views of his affiliated broker-dealer or RIA. Readers of this piece are reminded that investing in securities entails risk, and that past performance or investment success does not provide any assurance of future returns. The information contained herein has been obtained from sources believed to be reliable, but its accuracy cannot be guaranteed.