Dividend Investing: Broader Is Better for Multi-Asset Strategies

Investing in dividend-paying stocks has proved to be a helpful strategy, outperforming global markets over the long term. But their returns can fluctuate, with outcomes influenced heavily by market conditions and stages of the business cycle.

We think dividend-income strategies can be effective across multiple environments, provided that they’re designed to tap into a wider opportunity set beyond traditional dividend payers alone.

Traditional Dividend Stocks: The Risks of a Narrow Focus

Dividend-income strategies play an important role for multi-asset income portfolios. But they can also run the risk of being too narrowly focused, which can limit both income potential and upside participation when equity markets rise.

Traditional dividend strategies tend to be more defensive, outperforming when economies slow. That’s because companies able to pay high and consistent dividends are often more mature, with relatively stable business models and stronger balance sheets, which can help them navigate periods of market stress.

However, investing solely in traditional dividend-paying companies could sacrifice returns through some parts of the cycle. Dividend-payers tend to have value traits, and, as a result, are natural competitors to high-growth companies that reinvest profits to expand their business instead of returning them to shareholders. Therefore, when growth is more rewarded, dividend payers tend to lag.

For these reasons, we believe a more thoughtful and diversified approach to dividend investing makes sense.