From one perspective, 2024 has been a big year for dividends. Meta Platforms META, Alphabet GOOG, Salesforce CRM, and Booking.com BKNG, all initiated quarterly payouts to shareholders in the first quarter. Nvidia NVDA announced it would raise its cash dividend by 150%. Of the top 10 constituents of the Morningstar US Market Index, only Amazon.com AMZN and Berkshire Hathaway BRK.B don’t pay dividends.
Yet, this positive news comes at a time when equity-income investors may feel the deck is stacked against them. First, dividend yields look paltry compared with the income offered by bonds. Second, share buybacks continue to exceed dividends as a way for companies to return cash to shareholders. Third, relative returns for dividend payers have underwhelmed. The Morningstar US High Dividend Yield Index, representing the higher-yielding half of the US dividend-paying universe by market capitalization, is lagging the broad equity market in 2024. It’s also well behind for the trailing five-, 10-, and 15-year periods.
Equity income investors—of which there are many judging by fund assets—can be forgiven for wondering if dividend-based investing still “works.”