Volatile Markets and a Hawkish Fed Have Investors Gobbling Up Dividend Stocks

Downturn in the Market Makes Dividend Stocks Attractive

Analysts say recent market volatility and uncertainty regarding the prospect of rising interest rates has left investors clamoring for dividend stocks. Equities have pulled back through the early part of the year led by selloffs in high-growth sectors such as technology. Market watchers explain that investor cash is being put into so-called “safer” companies that pay dividends.

Data shows investors are buying up shares of firms that issue annual payouts, such as oil companies, telecoms, and banks. In fact, the S&P 500 High Yield Dividend Index, which includes the broader index’s top 80 dividend stocks, was up 2.1% as of February 4. Analysts explain that when inflation spikes and the Fed eyes rate hikes, investors feel uncertain about the overall health of the economy and become risk-averse. This is where tech has sagged and income-generating stocks have gained ground.

Analyzing the Other Side: How Growth Stocks Have Slipped

Taking a look from the opposite direction, the broader selloff in tech stocks has dragged down all three major indexes during the first month-plus of 2022. The S&P 500 was down 5.9% on the year as of Monday’s market close, while the tech-heavy Nasdaq had fallen by 10%, and the Dow Jones Industrial Average was down 3.4%. Analysts say investors prefer the steady footing of dividend stocks when the market is showing such turbulence.

To that end, investors are flocking toward established energy companies, iconic consumer product brands, and other dividend-paying stocks. One such example is Chevron (CVX) which has a 3.8% dividend yield and has seen share prices rise by over 10% during 2022. Alternatively, after AT&T announced plans to cut its dividend, shares sold off.

Keep An Eye on Bond Yields

Throughout January, a record $7.5 billion was poured into funds that buy dividend stocks. Analysts say part of the story revolves around bond yields. Currently the 10-year US Treasury yield is right around 1.90%, but adjusted for inflation it’s more like -0.5%. With the S&P 500 dividend yield at 1.3% as of last week’s market close, analysts say income-paying stocks remain the more attractive option.

Economists say that if conditions continue to deteriorate for the market as a whole, investors’ attitudes could change. Dividend-paying stocks could cut payouts, making bonds more attractive by comparison. On top of that, the Fed has indicated plans to offload assets from its balance sheet which include bonds, and that could cause fixed-income yields to rise. It’s a trend some analysts describe as a return to “boring” after a boom period for pro-growth stocks.

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
SOSS22020902