The dividend yield on the S&P 500 is the lowest since the dotcom bubble
There hasn’t been much for dividend investors to cheer about these days, according to Trivariate Research. The yield on the S & P 500 , currently at 1.15%, is approaching its lowest levels in 50 years, founder Adam Parker pointed out in a note this week. The only time it sank lower was when it troughed at 1.09% during the tech bubble, he said. The blame can be put on the shoulders of megacap tech companies that are dominating the index, he suggested. Information technology stocks are the largest cohort, making up 35% of the S & P 500. Enthusiasm around artificial intelligence has repeatedly sent big tech names like Nvidia , and the S & P 500, to new highs this year, although they have endured rockiness recently. “The percentage of companies with a dividend sits at 56%, not meaningfully different from the last 25 years,” Parker wrote. “Hence, it is clearly the largest companies by market cap. having low / no dividends that are driving this current regime.” For instance, Nvidia yields a paltry 0.02%, while Microsoft has a 0.76% dividend yield and Alphabet yields 0.29%. In addition, dividend-paying stocks are having their third-worst stretch in 25 years thanks to the surge in those non- or low-payers, he said. Traditionally high-yield defensive sectors like consumer staples, telecom and pharma have been weak, he noted. However, concerns about valuations and the path of Federal Reserve monetary policy have hit tech stocks recently. The overall market staged a comeback on Friday after the prior session saw a big sell-off. Nvidia, which ended in the red Thursday despite reporting blockbuster earnings , closed slightly lower Friday. The chip stock is up 33% so far this year, but is down nearly 12% month to date. Parker’s long dividend stock ideas When it comes to dividends, there are different strategies investors may follow, whether it is focusing on high payouts or consistent growth. Since Covid, those that increase their dividends have mildly outperformed their industry group, Parker said. The increases have worked best in real estate, utilities and energy, he said. Specifically, among the companies that raise their dividend payout ratio, those that boost their dividend in the lowest payout ratio quintile — with a payout ratio lesser than 16.2% — have outperformed their industry group average over the next two years, Parker said. To that end, he compiled a list of long ideas that focuses on companies that have recently announced dividend increases. They are in the bottom quintile of payout ratio and are poised to increase their payout again in the future, Parker said. Here are some of the names that made the cut. Cinemark Holdings increased its quarterly dividend by 12.5% earlier this month, effective Dec. 12 for shareholders on record on Nov. 28. It currently yields 1.24% The company reported a revenue beat for its third-quarter, but its earnings fell short of expectations. It also said it has retired its pandemic-related debt. In addition to the dividend raise, Cinemark said it would buy back $300 million shares. The stock has an average analyst rating of overweight and nearly 16% upside to the average price target, according to FactSet. Cinemark has lost about 5% so far this year. Capital One Financial is also one of Parker’s long ideas. The financial services company recently raised its quarterly dividend to 80 cents from 60 cents, a more than 30% bump, payable Dec. 1 for stockholders on record on Nov. 17. The stock currently has a dividend yield of 1.58% COF YTD mountain Capital One Financial year to date Capital One’s third-quarter earnings also recently beat analyst expectations, coming in at $4.83 per share. Analysts polled by FactSet had anticipated $4.38 a share. The stock has an average analyst rating of overweight and 26% upside to the average price target. Shares have gained nearly 17% year to date. Lastly, Cheniere Energy announced a 10% increase in its quarterly dividend, to 55 cents a share from 50 cents. The stock currently has a 1.07% dividend yield. Cheniere has an average analyst rating of buy and 32% upside to the average price target. The stock is down more than 4% so far this year.
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