An Aging Trend and the Need for Income: The Centenarians age group, which consists of individuals 100 years of age and older, is now the world’s fastest growing age group.
As the global population lives longer, we believe dividend paying stocks will grow increasingly important as one of the asset categories to provide growth of income.
With the current S&P 500 dividend yield sitting at 1.89% and five-year Treasury yields paying just 1.77%, the stock market remains an appealing place to invest your money. During the quarter, the market rallied in August but July and September were far less fruitful months for investing. The third quarter wasn’t the strongest for big, dividend stocks but the Dow Jones Industrial managed to slightly edge out the S&P 500 rising +1.29% versus +1.13%.
There is a widespread perception that the Federal Reserve is entering the final stages of economic stimulus. While the market reaches new highs, small and mid-size companies struggle as the focus narrows to cheaper valuations and safety of large cap stocks. Despite the meager year to date increase of +2.8%, the Dow Jones Industrial Average hit new highs 18 times. The Dow has not kept pace with the S&P 500 Index (+8.34%), exposing numerous attractive valuations entering the last quarter of the year.
Source: Ned Davis Research
As interest rates slowly rise over the next several years, how will that impact dividend paying stocks? Dividends paid by S&P 500 companies are expected to rise an estimated 40% through 2019. Some analysts see a steady rise in growth with an increased percentage of profits distributed to shareholders. This is good news for Baby Boomers and older age categories. The chart on the previous page, provided by Ned Davis Research, shows the Centenarians age group, which consists of individuals 100 years of age and older, is now the world’s fastest growing age group. As the global population lives longer, we believe dividend paying stocks will grow increasingly important as one of the asset categories to provide growth of income as well as growth of principal.
Top performing sectors for the quarter were Healthcare +5.03%, Information Technology +4.34% and, a distant third, Financials +1.85%. The biggest losers for the quarter were Energy down -9.15%, followed by Utilities -4.86% and Industrials -1.61%. Sector leadership shifted in the quarter with Technology remaining strong but Healthcare took over the lead. The portfolio was overweight in Technology and Industrials and underweight in Energy and Staples.
Sources: Factset; Ned Davis Research
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