Broader equity benchmarks are showing signs of weakness in the first four months, which could indicate that investors need to be ready for lower returns moving forward.
Investors can thrive in such environments by investing in dividend growth stocks. They don’t need to stock-pick as many exchange traded funds, such as the Invesco Dividend Successors ETF (PFM B-)Concentrate on companies with an impressive track record of boosting payouts.
Bank of America strategists believe that the S&P 500 is well-positioned for low price returns. However, dividends could make a significant difference. They have accounted for more than one third of total returns since 1936. Jack Hough reports for Barrons.
For its part, PFMFollow the NASDAQThe US Broad Dividend Achievers Index is meaningful because it doesn’t allow any dividend-payer to join its ranks. Instead, the NASDAQUS Broad Dividend Achievers Index demands that its member companies have increased cash dividends for at minimum 10 years.
Barrons says that payouts as a percentage profit are at record lows, which suggests ample potential for dividend increases.
The 12-month PFMs distribution rate of 1.92% is $718.5 million. PFMs distribution rate of 1.92% is not as high as the dividend yield on S&P 500. PFMs 375 holdings actually have the resources to keep increasing payouts for years. Broadcom, a semiconductor company (NASDAQ:AVGO).
Over the past decade, the stock has returned more that 2,000%. Although it might not sound like an income investment, the shares pay 2.8%. The company’s market value is 7% and the free cash flow is 7%. Payments seem well-covered. According to Barrons, Broadcom announced a 14% payment increase in December.
Barrons also highlights Dow components Caterpillar as another company with high dividend growth potential.NYSE:CAT) and Merck (NYSE:MRK) as well as Fifth Third Bancorp (NASDAQ:FITB) and Hewlett Packard (NYSE:HPQ). All four stocks are members the PFM portfolio. Warren Buffetts Berkshire Hathaway recently bought a stake at the tech company. The company has a free cashflow yield of 12% which indicates that it can invest capital in shareholder rewards.
Warren Buffetts Berkshire Haway recently announced a large new stake in HP Inc.HPQ), the personal computer and printer maker. Barrons notes that HP’s recent gains were fueled by cost-cutting and stock buybacks. Also, there was a demand for home office equipment during this pandemic.
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