Dividends on the decline

Dividends on the Decline

The Wall Street Journal reported today that 83 publicly traded US companies have suspended or canceled dividends in 2020 and 142 companies have reduced dividends thus far. This is more than the last 10 years combined, with energy and consumer discretionary being hit the hardest. Large cap value stocks, which overall pay a higher divided, have declined 17% year-to-date compared to the S&P 500 down 10% and large cap growth stocks are down 5%. The S&P 500 currently yields 1.9%, the value stocks within the index are yielding 2.75% and growth stocks are yielding 1.19%.

Despite the headwinds in value stocks, many ETF allocation managers are adding an overweight to value stock in their models. There is data to support this. Morningstar reports that value stocks have outpaced growth stocks up to three years after a recession every time since 1970. This would be quite a comeback in this recession for value stocks, as growth stocks have outpaced value stocks over the last ten years and are still underperforming year-to-date. Since 1970, value stocks have a slight edge on growth stocks. For most investors, the best practice is to not place a bet on either style, but to hold both in an S&P 500 index fund like IVV, SPY or VOO. For those looking to place bets, exchange traded funds like SPYV, IVE and VTV are good and cheap access to large cap value stocks.

Casey T Smith

Posted 4/30/2020