Rising Rates, No Problem

High dividend-paying stocks have been on a tear this year. For some, the trend may seem counterintuitive since the sector is typically shunned in rising-rate environments, which often are indicative of a growing economy. At present, the Fed is hiking rates in an attempt to combat rising inflation, and there’s concern that could lead to a broader economic downturn. That would be bad for growth stocks, and may be why investors are pivoting away from the sector in recent months.

Some investors see high-dividend paying stocks as safer bets in comparison to growth stocks. Most often these are large companies in sectors like utilities and consumer staples that deliver products connected to non-discretionary spending.

Growth Stock’s Engine Sputters

The popularity of these stocks is showing up in valuations, and growth stocks have recently stumbled. The Core High Dividend ETF (HDV) by iShares is up over 5% this year, buoyed by companies like Johnson & Johnson (JNJ) and Coca Cola (KO). Conversely, the S&P 500 has seen a loss of about 10% and double-digit declines in the index’s more growth-oriented subsectors, such as technology and communications. The share prices of companies like Alphabet (GOOGL) and Meta Platforms (FB) have been hammered.

This reverses a years-long trend of strong performance for growth stocks.

Tailwind From Oil

Oil and gas companies such as Exxon Mobil (XOM) are a significant component of the dividend-paying group and have contributed to the strong performance. It’s also worth noting that the energy sector has already risen close to 50% this year, and some question whether it’s out of runway.

Overall, the recent popularity of the high-dividend payers has pushed up their valuations, prompting some to explore other options at a potentially lower price. Others may look to branch out and consider the so-called value sector, which includes some dividend-paying companies.

Things are changing daily within the financial world. Sign up for the SoFi Daily Newsletter to get the latest news updates in your inbox every weekday.

Sign up

Please understand that this information provided is general in nature and shouldn’t be construed as a recommendation or solicitation of any products offered by SoFi’s affiliates and subsidiaries. In addition, this information is by no means meant to provide investment or financial advice, nor is it intended to serve as the basis for any investment decision or recommendation to buy or sell any asset. Keep in mind that investing involves risk, and past performance of an asset never guarantees future results or returns. It’s important for investors to consider their specific financial needs, goals, and risk profile before making an investment decision.
The information and analysis provided through hyperlinks to third party websites, while believed to be accurate, cannot be guaranteed by SoFi. These links are provided for informational purposes and should not be viewed as an endorsement. No brands or products mentioned are affiliated with SoFi, nor do they endorse or sponsor this content.
Communication of SoFi Wealth LLC an SEC Registered Investment Adviser
SoFi isn’t recommending and is not affiliated with the brands or companies displayed. Brands displayed neither endorse or sponsor this article. Third party trademarks and service marks referenced are property of their respective owners.
SOSS22050602

The post Investors Flock to High Dividend Stocks appeared first on SoFi.