Dividend Stocks Poised to Shed Laggard Status: Chart of the Day

Dividend-paying stocks are still a “winning theme” for investors even though they have gotten off to a relatively slow start this year, according to Gina Martin Adams, a strategist at Wells Fargo Securities LLC.

The CHART OF THE DAY tracks the performance of the Standard & Poor’s 500 Dividend Aristocrats Index, composed of companies that have raised payouts for at least 25 consecutive years, relative to the S&P 500.

While the dividend-aristocrat index rose 4.2 percent for the year through yesterday, the gain was 2.6 percentage points smaller than the S&P 500’s advance. By contrast, the indicator fared better than the S&P 500 in the past two years, its first back-to-back wins since 2002.

Payout ratios suggest companies can distribute plenty more money to shareholders, Martin Adams wrote yesterday in a report. She noted that dividends equal 27 percent of S&P 500 earnings, the lowest figure in more than a century, according to data compiled by Yale University Professor Robert Shiller.

“Companies may be only just beginning to catch on to the fact that investors are keenly interested in dividend-paying stocks,” the report said.

Dividends may be in relatively high demand for years, Martin Adams wrote, as debt-reduction efforts result in slower earnings growth and an aging population favors investments that produce income.

To contact the reporter on this story: David Wilson in New York at dwilson@bloomberg.net

To contact the editor responsible for this story: Nick Baker at nbaker7@bloomberg.net