In periods of elevated market volatility, investors ought to look to stocks which are growing their dividend for stability and fortitude rather than ones with only a high yield.
A monthly analysis by BMO Capital Markets discovered that when implied volatility have been at above-average levels, a dividend strategy focused on growth and yield posted an average yearly return of four.1 percent over a loss of 3.9 percent for the S&P 500. These stocks are required to see their earnings grow at a faster clip than the overall market, that has occurred only a number of times in the last 15 years.
“Dividend growth strategies not only have offered higher average returns than yield-based strategies historically, but they also have done so with considerably less risk,” analysts at BMO wrote last Friday inside a research note to clients. An increasing dividend is a key sign that the company has stable earnings and funds flow.
It works out that these stocks perform very well in good times, too, since dividend growth and yield stocks contain broad representation from cyclical areas. Some of BMO’s top picks in the U.S. for dividend growth and yield include: Harley-Davidson Inc., Caterpillar Inc., Union Pacific Corp., Hasbro Inc. and MetLife Inc.