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Jefferies Strategists: Dividends Outweigh Earnings for Stock Returns

Jefferies Strategists: Dividends Outweigh Earnings for Stock Returns
(Stock Photo Secrets)

By    |   Tuesday, 24 May 2016 11:40 AM

Stock market returns in the past year have been driven by dividends, not earnings, which have declined for many companies, especially in the energy business.

Companies that are paying dividends are also posting better gains, according to strategists at Jefferies LLC.

"U.S. indices whose constituents show increasing dividend payments over time have sharply outperformed since the beginning of the year," equity strategist Sean Darby at Jefferies writes in a report obtained by Business Insider. "A scarcity of 'dividend growth' globally, combined with flattening G7 yield curves, has put a bid on 'U.S. dividend growth stocks,' in our view. U.S. real bond yields have also fallen since November 2015 underwriting income generating stocks."

The S&P 500 index is down 2.5 percent from a year earlier, when it reached a record high of 2,132.82. Since then, it has had two declines of more than 10 percent, or “corrections” in Wall Street parlance, as global growth cooled and oil prices touched 13-year lows before rebounding.

The dividend trend may not be as strong this year, though.

“Dividend payment increases were hot in 2015, with announced dividend payouts rising 10.6 percent year over year. And the companies that jumped on this train were rewarded,” Business Insider says. “Dividend payments increases, however, are expected to drop to just a 4.2 percent year over year growth rate in 2016.”

Investors need to prepare for lackluster returns for the near future, Blackstone Group strategist Byron Wien is warning.

“Investors will be lucky to get a 5% to 7% annual return” in the coming years, he told Barron’s.

He also believes that the global economy will expand at just 2% this year, below early-year official forecasts of more than 3%, Barron’s reported. Gross domestic product increased at a 0.5 percent annual rate, the weakest since the first quarter of 2014, the Labor Department said in its advance estimate.

The U.S. economy will struggle to grow at more than a 2% annual rate, he says. “I don’t think that’s satisfactory to many Americans who want higher growth and the benefits that come with that,” he told Barron’s.

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Stock market returns in the past year have been driven by dividends, not earnings, which have declined for many companies, especially in the energy business.
Jefferies, stocks, dividend, investing
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2016-40-24
Tuesday, 24 May 2016 11:40 AM
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