Dividend stocks have been among the worst performers not only this year but also across the last several years. With domestic dividend stocks in the gutter, is the group due for some rebound, or are there other areas we can look for income?
Dividends stocks are a backbone of many portfolios, especially among older clients and retirees that rely on that income. Unfortunately for these individuals, dividend stocks have been among the worst performers not only this year but also across the last several years. With dividend stocks in the gutter, is the group due for some rebound, or are there other areas we can look for income?
The Invesco High Yield Equity Dividend Achievers ETF (PEY) has historically been among the better dividend funds out there, but with most dividend stocks floundering, the fund has reached historic levels of market underperformance. The fund is down YTD, below levels it reached in May of 2021, and its last three years are quite literally its worst on record. Specifically, PEY has gained 17.2% over the last three years, lagging the S&P 500 by 65%, which is the worst three-year span for the fund by a full 15%. All this relative underperformance has culminated in significant lack of relative strength. PEY holds an extremely weak fund score of 1.13, which is 3.87 points behind the iShares S&P 500 ETF (IVV). That gap between the two funds is near the largest ever, so it could be some time before we see the group’s strength rebound.
Since many investors live on their dividend income, it’s not realistic to cut those names out of a portfolio entirely, even during period of weakness like this one. Domestic equities do have individual dividend names that offer strength (many of which can be found on the yield buy list), but another area that investors could look toward for is international equities. Unlike the domestic market dominated by leadership in risk-on areas, international equities have been led by more value-oriented areas, including dividend stocks.
One prime example of this is the iShares Dow Jones International Select Dividend ETF (IDV). The fund has traded in a positive trend for nearly three year and is on a streak of three consecutive buy signals after gaining more than 40% this year. IDV also holds a near-perfect fund score of 5.89 that’s 4.6 point higher than PEY. That fund score difference between the two is currently at its widest spread recorded, so it makes more sense than ever to look for dividend names abroad rather than domestically. While dividends broadly remain out of favor, those willing to get creative can still take advantage of select areas of strength like these where momentum is most prominent. Remember, international names carry with them different risks than those here domestically, something to keep in mind when considering suitability within client portfolios.
