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Investors Flock to High Dividend Stocks

Rising Rates, No Problem

High dividend-paying stocks have been on a tear this year. For some, the trend may seem counterintuitive since the sector is typically shunned in rising-rate environments, which often are indicative of a growing economy. At present, the Fed is hiking rates in an attempt to combat rising inflation, and there’s concern that could lead to a broader economic downturn. That would be bad for growth stocks, and may be why investors are pivoting away from the sector in recent months.

Some investors see high-dividend paying stocks as safer bets in comparison to growth stocks. Most often these are large companies in sectors like utilities and consumer staples that deliver products connected to non-discretionary spending.

Growth Stock’s Engine Sputters

The popularity of these stocks is showing up in valuations, and growth stocks have recently stumbled. The Core High Dividend ETF (HDV) by iShares is up over 5% this year, buoyed by companies like Johnson & Johnson (JNJ) and Coca Cola (KO). Conversely, the S&P 500 has seen a loss of about 10% and double-digit declines in the index’s more growth-oriented subsectors, such as technology and communications. The share prices of companies like Alphabet (GOOGL) and Meta Platforms (FB) have been hammered.

This reverses a years-long trend of strong performance for growth stocks.

Tailwind From Oil

Oil and gas companies such as Exxon Mobil (XOM) are a significant component of the dividend-paying group and have contributed to the strong performance. It’s also worth noting that the energy sector has already risen close to 50% this year, and some question whether it’s out of runway.

Overall, the recent popularity of the high-dividend payers has pushed up their valuations, prompting some to explore other options at a potentially lower price. Others may look to branch out and consider the so-called value sector, which includes some dividend-paying companies.

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James Flippin ABOUT James Flippin James Flippin is the son of a financial advisor who grew up hearing and learning about bond yields, interest rates, the stock market, and the ins and outs of Wall Street. After stints as a licensing and business broker for Marcus and Millichap in New York City, James moved into broadcasting and became a reporter and anchor. He covered crime, politics, finance, and tech at NBC News Radio while working part-time as a producer for SiriusXM. James graduated from the University of Delaware with a bachelor’s degree in political science and economics. He's also an accomplished podcaster with over 10-years of experience.

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