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Financial Industry Insights from Advisors Asset Management
On March 06, 2017
AAM Viewpoints – Paying Dividends: High Quality and High Dividends Continue to Reward Investors
Since the recession, markets have staged an impressive rally, marked by low interest rates and decreased volatility, as asset prices have been buoyed by monetary policy from the U.S. Federal Reserve. The resultant low-rate environment spurred many asset allocators and other yield-focused investors to increase exposures to higher-yielding assets, including the higher-yielding sectors of the equity market.
While seeking yield remains popular and has remained an integral part of many investors’ returns, reaching for yield indiscriminately is fraught with risks. When investing in higher dividend paying companies, we believe it is important to also incorporate quality, generally considered a proxy for company stability, as an integral part of choosing investments that have the potential to generate long-term returns. In particular, since 1990, high quality high dividend stocks have outperformed low quality non-dividend stocks by 5.3% annually while generating just 70% of the annualized volatility exhibited by low quality non-dividend stocks (see table below).
Source: HIMCO. Past performance is not indicative of future results.
Looking into 2017, we remain wary of the accelerating pace of interest rate hikes by the Federal Reserve, as higher rates tend to be negatively correlated to the performance of high-yielding stocks. However, we believe pro-business policies under the Trump administration should be a positive offset as lower corporate taxes and large-scale fiscal stimulus may potentially boost corporate balance sheets and returns. Looking beyond, considering the historically attractive returns, lower volatility, and consistency over multiple cycles since 1990, we believe investor allocations to high quality high dividend stocks have and can continue to pay dividends.
CRN: 2017-0306-5846 R
Dividends are not guaranteed and will fluctuate. Dividend yield is one component of performance and should not be the only consideration for investment. An issuer of a security may be unwilling or unable to pay income on a security. Common stocks do not assure dividend payments and are paid only when declared by an issuer’s board of directors. The amount of any dividend may vary over time.
AAM is not affiliated with The Hartford Financial Group, Inc. or HIMCO, and was not involved in the preparation of this article. The opinions expressed herein are solely those of HIMCO, and do not necessarily reflect those of AAM.
This commentary is for informational purposes only. All investments are subject to risk and past performance is no guarantee of future results. Please see the Disclosures webpage for additional risk information at commentary-disclosures. For additional commentary or financial resources, please visit www.aamlive.com.
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