James Nelson:
4 Your Money is brought to you by NelsonCorp Wealth Management.
Brandy Auterson-Hurst:
It’s now time for 4 Your Money. We’re joined by James Nelson, financial planner at NelsonCorp Wealth Management. Welcome back, James.
James Nelson:
Thanks, Brandy.
Brandy Auterson-Hurst:
So dividend investing is usually thought of as a safer, steady approach. Is that what the data shows?
James Nelson:
Yeah. So there’s a common misconception out there that in order for an investment to be good, it needs to pay a high dividend, and history suggests that’s not really the case. So I’ve got a chart here that I brought along that compares an index of high dividend US stocks versus the S&P 500, the broader index, just using the rolling 100-day total returns, going back to 2000. So for context, when the line is above zero, the dividend stocks are outperforming, and when it’s below zero, the S&P is leading. So you can see there’s lots of fluctuation there, but ultimately, the dividend strategies have mostly lagged the index. Now, from 2010 to 2019, the difference was very small, as you can see the note in the bottom there. But from 2020 to today, the S&P has outperformed by almost three full percentage points, so that’s a pretty significant difference.
Brandy Auterson-Hurst:
All right. So why has this shift happened, and what does it mean for investors?
James Nelson:
So it really comes down to the sector weightings. Dividend stocks are heavily invested in slower growing sectors and underweight in those sectors versus what’s outperformed in recent years, it’s primarily been technology. So those dividend stocks don’t have a huge tilt towards technology. But I will say focusing on the dividends isn’t necessarily a bad thing, those stocks usually hold up a little bit better in a drawdown. But that style today has changed a lot and it’s not the value type investing from the past.
Brandy Auterson-Hurst:
If you missed any of our discussion, we’ll make it available for you on ourquadcities.com.
Past performance is no guarantee of future results. Investing involves risk. Depending on the types of investments, there may be varying degrees of risk. Investors should be prepared to bear loss, including total loss of principal.
Indices mentioned are unmanaged and cannot be invested into directly.
This video includes a paid appearance.