The recent volatility in growth stocks has brought dividend equities back into focus.
Dividend-paying stocks have outpaced their growth counterparts by a substantial margin for the year-to-date, as fears of rising interest rates and worries about the pace of economic growth in the United States and China have raised concerns over the elevated valuations of many previously high-flying growth stocks.
Against this backdrop, we explore four emerging trends in the dividend universe.
1. Positive correlation between dividend yields and bond yields
For most of the past 30 years, the relative returns of high dividend-yielding stocks and changes in US Treasury yields had a negative relationship. That relationship reversed in the past two years and high-yielding stocks have exhibited a positive correlation to bond yields. If this trend continues, a rise in interest rates may not dampen prospects of dividend stocks as they have in the past.
Partly, it's because interest rates are rising, but from a very low base. Even as the Fed begins to raise policy rates, our fixed income rates team expects the 10-year Treasury yield to remain within a range of 2% to 3%, with a further flattening of the yield curve led by a rise in short-term rates.
For more on this trend and the three others identified by Capital Group, read the full article on our dedicated inflation hub
Statements attributed to an individual represent the opinions of that individual as of the date published and do not necessarily reflect the opinions of Capital Group or its affiliates. The information provided is not intended to be comprehensive or to provide advice. Emerging markets are volatile and may suffer from liquidity problems.
