Cash is king now. The latest evidence: the hugs of the stock market that pay dividends, compared to another longtime favorite, firms that buy.

Investors are rushing to companies that promise regular payments to shareholders, a testament to Wall Street’s desire for cash in hand as the Federal Reserve raises interest rates and major stock indexes struggle.

They turn to companies such as AT&T Inc.

and cigarette manufacturer Altria Group Inc.

as the broad market experiences one of the most volatile periods of the last decade. Concerns about rising interest rates, sky-high inflation and slowing growth have turned the stock market upside down, forcing many investors to abandon the highly developed companies that have dominated the past decade – firms that often do not pay dividends or only small ones.

Keeping cash today is incredibly popular on Wall Street. This is a major change from the way professional asset managers have behaved over the past decade. Dion Rabuen of the WSJ explains why cash is no longer rubbish. Illustration: Adele Morgan

Corporate executives who decided to buy back shares and pay big dividends were often rewarded with shareholders for 20 years before the Covid-19 pandemic. Recently, there has been a discrepancy.

According to Credit Suisse analysts, from the beginning of 2020, companies that pay high dividends continue to be ahead of companies with lower payouts, while the shares of companies that invest the most money in the redemption of shares lag behind those in which the lowest redemption .

“If I have a choice: do you buy more of your shares or do you give me cash… I would prefer to have cash,” said Max Wasserman, founder of Miramar Capital, which oversees the shares of companies that pay dividends, including United Parcel Service Inc..

which boosted investor returns this year.

The shift shows a premium that investors pay for stable cash payouts rather than for promising future returns. This advantage only intensified when the Fed launched an ambitious campaign to raise interest rates to curb inflation. High inflation and rising interest rates are eating away at the value of companies ’future earnings, while increasing the attractiveness of cash today.

The stock fund that aims to invest in companies that throw out a lot of free money, the Pacer US Cash Cows 100 ETF, rose about 2% this year, while major indexes posted a double-digit decline.

Many of the stocks with the highest dividend yields in the S&P 500 are soaring past the wider market. This year, shares of AT&T rose 12%, while shares of Altria Group rose 10% and shares of pipeline operator Oneok Inc..

added 8.2%. According to FactSet, all three shares have dividend yields above 5%. The base index fell 17% in 2022 and was teetering on the edge of a bear market.

According to S&P Dow Jones Indices, the S&P 500 paid a record $ 137.6 billion in dividends in the first quarter, and senior index analyst Howard Silverblatt expects a new record to be set this quarter.

The S&P 500 High Dividend Index rose 2.8% in 2022, while the S&P 500 Redemption Index fell 12%.

Dividends were not always stars. In recent years, many investors have flocked to high-valued companies, many of which have offered big payouts in the future rather than right now. This year, many of these rates have changed and weighed on the broad market. Investors said the free money offered by companies that pay dividends is now more valuable to them because interest rates are higher.

John Augustine, Huntington Private Bank’s investment director, said all of his firm’s stock strategies in recent months have added dividend-paying stocks, to the point that each has a higher dividend yield than its benchmark.

“We don’t know what the Fed will do next year, so I want cash now,” Mr Augustine said.

The drive for cash today is clearly reflected in the performance gap between large U.S. stocks with the highest dividend yields and those that do not pay dividends.

Share your thoughts

Do you expect dividend-paying stocks to continue to outperform? Why or why not? Join the conversation below.

According to Bespoke Investment Group, Russell 1000 shares with the highest dividend yield on November 19, 2021 rose an average of 4% over the next six months. Shares of Russell 1000 without dividends fell an average of 29% during that time.

Giorgio Caputo, manager of the JOHCM Global Income Builder Fund, said he has recently preferred energy companies because of the prospect of receiving higher dividends. He also made adjustments to his portfolio due to rising inflation and rising interest rates.

“It’s almost a 180-degree change from what we’ve seen in the last decade,” he said.

Email Karen Langley at and Gunjan Banerjee at

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