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Dividend Income Strategies In The Spotlight Amid Low Yield Environment

With yields at or near historical lows in global bond markets, income-seeking investors may be on the hunt for dividend-paying stocks. Through reinvested dividends and the power of compounding, a dividend income strategy can support overall total return and potentially outperform the market when prices decline, so long as a portfolio includes a diversified mix of dividend payers and growers.

The case for dividend investing isn’t too hard to make right now. Bond yields are declining as central banks across the globe cut interest rates to help stave off a slowdown in economic growth. In Europe, weaker manufacturing activity, declining business sentiment and expectations of further monetary stimulus from the European Central Bank are compressing government yields there. Trade tensions between the U.S. and China are starting to impact Asian economies. Recent Chinese economic data has been weak, too.

Here in the U.S., where government bond yields offer a bit more return than elsewhere, the recent volatility in stock markets has pushed investors into safe assets, such as treasuries, driving down yields. In this environment, it makes it increasingly difficult for investors to find inflation-adjusted returns to, say, shore up deficits in pension funds, or to find income-generating assets for long-term investing strategies.

As Rick Rieder, BlackRock’s chief investment officer of global fixed income puts it, “There isn’t enough investment income available in the world today relative to the aging population that needs it. What it’s calling the “dearth of yield availability,” which supports income-producing markets is one of BlackRock’s five key investment themes for the rest of the year. The theme, it says, is quickly becoming a common refrain in the markets.

“As a case in point, nearly 30% of developed market (DM) global government bond debt is negative yielding today, while almost 80% of it yields less than 2%,” Rieder says in an August 7 blog post. In addition, yields across credit sectors are similarly scarce, with issuance from traditional “yieldy” entities plummeting with dwindling demand from investors for traditional debt-financed corporate capital expenditures.1

In addition to less supply, credit spreads (or the risk premium investors pay above safer government debt to own riskier bonds) are tighter when compared to historical averages. This is particularly the case for higher-yielding, but lower-credit-quality debt (namely, junk bonds and leveraged loans). Given these trends, dividend growth strategies may be worth a look, strategists say.

“Since late July, stocks with high dividends have been outperforming stocks of companies paying lower dividends, driven by declining bond yields,” Dennis DeBusschere, senior managing director at Evercore ISI, said in a research note referenced in this August 9 CNBC report.2

Even after stocks rebounded in the latter part of the week ending August 9, “the relative performance of high vs. low dividend payers remains depressed, suggesting further upside for dividend payers as nominal bond yields remain extremely low yield,” he said.

Considering Dividend Strategies 

Data through August 11 show that the S&P 500 dividend yield is currently at 1.91% (based on the past four quarters of dividends, divided by the quarterly closing value of the index), compared to about 1.82% a year ago. For the same period, the yield on the two-year Treasury note was at 1.578% (about 2.633% a year ago), while the 10-note was yielding 1.639% (2.871% a year ago).

Since the beginning of August, equity markets are still finding their footing. Stock prices were given a recent boost with news that the U.S. would delay tariffs on Chinese imports on a range of items and consumer goods. But other factors are also weighing on the market, signaling a slowdown in global growth and recession fears. These include weak German and Chinese economic data, very low long-term U.S. Treasury bond yields, and an inverted U.S. Treasury yield curve.

Through August 13, the S&P 500 is down by 1.81% since the end of July. An index of 57 companies in the S&P 500 that have raised dividends each year for the past 25 years, while still in the red, is down by only 1.45% over the same period.

When dividend and price appreciation are taken into account, that index, known as the S&P 500 Dividend Aristocrats, has returned 7.77% in the past year, compared to 3.83% for the S&P 500. The Dividend Aristocrats trail the broader S&P 500 over a three-year period, but best the broader market on five- and 10-year annual total returns.



Indeed, for long-term investors, dividend strategies can boost returns beyond capital appreciation. During periods of flat to down markets, returns from dividend plays can offset a portion of what investors may lose due to choppy or declining markets.

Research by S&P Dow Jones Indices published in February 2019 shows that dividend income represented 33% of the S&P 500’s monthly return from 1926 through December 2018. However, dividend income represented as much as 50% or more of total returns in the 1940s and 1970s.3

There is also the power of compounding that dividend income can provide. Excluding dividends, a $1 investment in the S&P 500 on January 1, 1930 would have grown to $115 through December 2018. The same investment with dividends reinvested would have yielded $3,626, according to S&P Dow Jones Indices.

To put that into perspective, it’s worth a look to see how the compounding effect works over different time horizons. To do that, S&P Dow Jones Indices looked at data for the S&P 500 over the 50-year period through December 2018. The research found that the compounding effect increases as the time horizon lengthens. For each 10-year time horizon, for example, the annualized difference between price returns and total returns, on average, amounts to nearly 77%.

Numbers like these offer some hope for the long-term investor looking for growth with steady income.


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1-Rieder, R. (2019, August 7). 5 key investment themes for the remainder of 2019. BlackRock Blog. Retrieved from:

2-Fitzgerald, M. (2019, August 9). High-dividend stocks are starting to outperform as low rates become the new norm again. CNBC. Retrieved from:

3-Chirputkar, S. and Soe, A. (2019, February). A Fundamental Look at S&P 500® Dividend Aristocrats®. S&P Dow Jones Indices. Retrieved from:

Sources for Market Data:

S&P 500 Dividend Yield:

Two-Year Note:

10-Year Note:

S&P 500 Dividend Aristocrats:                                                                                           

S&P 500:                                                      

Chart Data:                                                                                                                                                  

Investment advisory services are offered through BCJ Capital Management, LLC., an SEC Registered Investment Adviser. bInformation presented is for educational purposes only. It should not be considered specific investment advice, does not take into consideration your specific situation, and does not intend to make an offer or solicitation for the sale or purchase of any securities or investment strategies. Investments involve risk and are not guaranteed, and past performance is no guarantee of future results. For specific tax advice on any strategy, consult with a qualified tax professional before implementing any strategy discussed herein. BCJ FG 19-119                  

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