Investment firm Jefferies promotes investments in growing dividend stocks given anticipated macroeconomic changes like reduced inflation, economic slowdown, and decreased commodity prices, according to a recent report.
Such an approach could offer multiple benefits including a steady income source, potential gain if stocks appreciate, and mitigating loss during market downturns. Furthermore, strong dividend growth can imply robust financial health of the companies and reduce investment risk.
Global Head of Quantitative Strategy at Jefferies, Desh Peramunetilleke, advocates high-quality-yield stocks as valuable prospects in the current economic climate. Incorporating these stocks can help diversify portfolios and provide a hedge against market volatility.
Peramunetilleke’s strategic outlook encourages investors to consider both domestic and international markets. He also emphasizes rigorous research and regular monitoring of market trends for optimal investment choices.
Peramunetilleke anticipates a rise in US dividend growth from 3.9% for 2023 to about 6.2% for 2024 across most sectors, led by the media and semiconductor sectors. He also emphasizes the resulting benefits of decreased stock buybacks, allowing companies to continue dividend growth without impacting free cash flow cover.
Jefferies identifies ‘dividend growers’ as companies displaying an annual compound growth rate in dividends per share of over 5% from 2019 to 2023, with similar rates expected for 2024 and 2025. These companies also maintain a positive cash flow conversion over the past five years and a dividend sustainability star rating of over three.
This categorization offers a direction for potential future performance by showing the company’s potential to maintain a growing dividend yield and steady cash flow. However, it does not guarantee future performance.
Prominent companies like JPMorgan Chase, known for likely dividends growth, fit this profile. JPMorgan managed to increase its dividend despite a regional banking issue and witnessed a share price rise of over 15% since the start of the year. Other big names like Apple, Microsoft, and Johnson & Johnson also demonstrate substantial market capital and decent dividend yield.
Despite business or market challenges, the trend of steadily increasing dividends seems to remain constant among these firms. This behavior showcases the immense potential of these businesses to grow their dividends in 2024 and beyond.
