It's a good time for dividend stocks. Which companies pay the best?

Dividend stocks performed poorly in the soon-to-be-ending 2023, but the end of interest rate increases and growing recession fears make them worth watching again. In the long term, it was the reinvested dividends that accounted for as much as 58%. average stock market returns over the last 20 years. It is also a good protection against inflation.

Will dividend companies come back into favor?

Dividend-paying stocks were big losers on the capital market this year, Results ETF containing companies with a high dividend rate -  iShares Core High Dividend ETF (HDV) are more than 20 points worse than the fund's performance this year SPDR S&P 500 ETF (-5% vs. +16%). High level of interest rates FED – 5,5 percent caused strong competition from other assets offering attractive interest rates without risk. This caused, among other things, $1 trillion inflow into US money this year. It seems that in the current situation, it is worth returning to dividend stocks, as global central banks are at the peak of the interest rate hike cycle, and cuts are already on the horizon. In Poland, there have already been two rate cuts by a total of 1 percentage point, although in November the Monetary Policy Council did not decide to cut rates again. At the same time, the specter of an economic slowdown is haunting the world, potentially increasing interest in more defensive investment strategies.

CHECK: How to invest in dividend companies? [Guide]

Global listed companies paid out $1,6 trillion in dividends to shareholders last year, an increase of 8%. compared to the previous year. Banks paid out the most of this amount - 27%. and the consumer products industry – 17 percent. Nestle, HSBC and Mercedes remain the largest dividend payers.

Historically speaking, dividends are an excellent long-term hedge against inflation. Over the past 20 years, consumer prices in the US and UK have increased by 63%, while companies paying dividends from S & P 500, increased the amounts paid on average by 84%.

Reinvested dividends are key

It is worth noting that reinvested dividends constitute as much as 48%. long-term returns from global stock markets. Global shares surged 170%. over the last 20 years, but after including reinvested dividends, this increase is as much as 320%. For the most important markets, the average is even higher and amounts to 58%. In the American market, the level is lower and amounts to 47%. in the S&P500, because it is a popular practice there to buy back their own shares as an alternative to paying dividends. Popular technology companies in the US tend to reinvest their profits rather than pay dividends - for NASDAQ the average is only 15 percent.

About the author

Pawel Majtkowski - analyst eToro on the Polish market, which shares its weekly commentary on the latest stock market information. Paweł is a recognized expert on financial markets with extensive experience as an analyst in financial institutions. He is also one of the most cited experts in the field of economy and financial markets in Poland. He graduated from law studies at the University of Warsaw. He is also the author of many publications in the field of investing, personal finance and economy.