Dividend-paying stocks as measured by the Morningstar Dividend Leaders Index have had a positive showing in a challenging year for equity and fixed income investors, according to new insights. The index has risen more than 8.5% in 2022 through May 24, as compared to an 18% decline for the broad US equity market as measured by the Morningstar US Market Index.
What’s the story behind the surge for dividend paying stocks amid the carnage in the broad equity market? It is a combination of factors, according to Morningstar Indexes:
- Energy stocks like Chevron, ConocoPhillips and Devon Energy – all big dividend payers, have had strong performance in 2022, as this sector has been the biggest driver of the index’s performance.
- Income investors have found equities more attractive than bonds in 2022 amid inflation and rising interest rates, with the Morningstar Dividend Leaders Index currently yielding 4% relative to 3% for the Morningstar US Core Bond Index.
- Defensive sectors like consumer defensive, healthcare, telecommunications and utilities – all overweight within the Morningstar Dividend Leaders Index - have performed well in 2022 as investors look to more conservative plays. Stocks like Coca-Cola, Merck, AT&T and Sempra Energy, all key constituents of the Morningstar Dividend Leaders Index – are positive in 2022.
Dan Lefkovitz – Strategist, Morningstar Indexes
“In a difficult year for equities, dividend payers have been a bright spot. Income investors have been chased into the equity markets. And after years of being overshadowed by high-flying tech stocks, defensive areas are back in favor. But beyond current short-term market dynamics, dividend payers remain a great way to participate in equities from a long-term total return perspective.”
Ryan Issakainen – Exchange Traded Fund Strategist, First Trust
“It’s no surprise that investment professionals have flocked to dividend ETFs this year. Many of these strategies are appealing to those seeking the stability of mature, high-quality stocks, an alternative source of income, and the potential for dividend increases. In our opinion, the Morningstar Dividend Leaders Index checks each of these boxes.”
If you have any questions or would like to speak with Dan Lefkovitz, please reach out to Tim Benedict at tim.benedict@morningstar.com or (203) 339-1912.