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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.

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ABOUT Meg Richardson Meg Richardson is a writer specializing in markets, technology, and personal finance. She loves breaking down seemingly complex ideas and making them readable and interesting for everyone. She holds an MFA in writing from Columbia University. When she is not writing about finance, she enjoys running in Central Park and drawing cartoons.

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