The Weekly Strategy Report (11 December 2017)
- A long-standing relationship between bond yields and dividend performance broke down after the global financial crisis: Despite low interest rates, the traditionally high yielding dividend stocks offering income—consumer staples, pharmaceuticals, telecoms, utilities, energy—have lagged the market.
- Challenger companies have unseated longtime market leaders in sectors such as biotechnology, automotives and tech. Many don’t pay dividends and are benefitting from an insignificant cost of capital.
- With payouts to U.S. shareholders (dividends and buybacks) now equal to earnings, and with our expectation they will continue to offer a principal source of equity returns in the coming years, we see equity income becoming an essential part of income-focused investors’ portfolios.
- We see potential opportunities for sustainable yields with decent dividend growth in the financial, mining and automotive sectors.
EXHIBIT 1: High dividend yield stocks'and bond yields relative performance
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The value of investments and the income from them can fall as well as rise and investors may not get back the full amount invested. Past performance is not a guide to the future.