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Time to Play Offense and Defense with Dividend Paying Stocks

You may have noticed that the market cycle has changed along with the Fed’s monetary policy shift to fight inflation. In a bull market, it pays to focus on capturing return. Bull markets are typically built and become wholly dependent on the Fed maintaining an accommodative monetary policy. Growth, momentum, and tech stocks typically do very well during bull markets.

Focus on Protecting Capital

In a negative market cycle, it pays to shift your primary focus to protecting capital. Historically, the beginning of the year provides strong positive performance – but not this year. The broad market S&P Dow Jones Indices all delivered negative returns in Q1 of 2022.

Source: S&P Dow Jones Indices and Morningstar Direct. Data as of March 31, 2022. Past performance does not guarantee future results. Index performance is total return. Indices are unmanaged and cannot be invested in directly.

Play Defense

With inflation soaring and the Fed way behind the curve on interest rate hikes, they will likely stomp on the proverbial brakes to slow the economy and inflation. When the Fed moves into this type of posture, they have caused a recession about 75% of the time. And recessions typically lead to bear markets. Dividend-paying stocks, especially high-quality and high-yielding dividend-paying stocks, are defensive but can also provide positive returns when the rest of the stock market falters. When we dig a little deeper into groups of stocks using factor-based analysis, we can see the outperformance so far this year for dividend stocks versus all other segments of the market, with the S&P 500 Low Volatility High Dividend factor index leading the way.

Source: S&P Dow Jones Indices and Morningstar Direct. Data as of March 31, 2022. Past performance does not guarantee future results. Index performance is total return. Indices are unmanaged and cannot be invested in directly.

At WBI, we specialize in dividend investing because we like the consistent return from dividend payments that are not dependent on market price movements. In declining markets, this source of positive return provides income that can be reinvested to improve compounding or used to support lifestyle expenses in retirement. As companies increase dividend payouts, the additional income provides an important inflation-fighting component to your portfolio. During negative market cycles, dividend stocks can help you play defense because they typically decline less in bear markets than growth stocks.

Our Power Factor®️security selection models are designed to help us find the highest quality high-yielding dividend-paying stocks to deploy on behalf of our clients. We offer dividend strategies that stay fully invested and rebalance quarterly to maintain high quality and yield. And for conservative investors, we offer more actively risk-managed strategies using the same security selection process, but add our Cash Hedge ProTM system that seeks capital protection.

Dividend Stock Super Cycle

The Fed’s shift to fight inflation is a clear signal to us that markets are entering into a “Dividend Stock Super Cycle”. We believe smart investors will stop chasing returns in growth stocks when that opportunity is mostly behind us. Instead, they will position their portfolios for the road ahead that will be paved with dividends.

All investing involves risk, including the loss of principal. There is no guarantee that investment objectives will be attained. Results may vary. There is no guarantee that risk can be managed successfully. Dividends are not guaranteed, are at the discretion of companies, and can stop at any time.



Unless otherwise indicated all performance is sourced from Bloomberg.


The views presented are those of the authors and webinar or podcast hosts/participants, and should not be construed as investment advice. The authors, podcast participants, webinar hosts, or clients of WBI Investments, LLC (WBI) may own stock discussed in these insights. WBl is an investment adviser in New Jersey. WBl is registered with the Securities and Exchange Commission (SEC). Registration of an investment adviser does not imply any specific level of skill or training and does not constitute an endorsement of the firm by the Commission. WBl only transacts business in states in which it is properly registered or is excluded or exempted from registration. A copy of WBI's current written disclosure brochure filed with the SEC which discusses among other things, WBI's business practices, services and fees, is available through the SEC's website at: This site contains links to third-party websites. WBl does not endorse, approve, certify, or control these websites and does not assume responsibility for the accuracy, completeness, or timeliness of the information located there. Your access to and use of such websites is governed by the terms of use and privacy policies of those sites, and shall be at your own risk. WBI disclaims responsibility for the privacy policies and customer information practices of third-party internet websites.

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