drop, dividend stocks are among the assets that become more attractive.
The DVY iShares dividend ETF, which holds high-yielding stocks such as AT&T and Exxon, has risen more than 1% in May as the 10-year has receded below 1.6%. That ETF is also 25% higher for the year.
Steve Chiavarone, portfolio manager at Federated Hermes, is backing more gains for the group.
“What has very quietly happened is dividends have outperformed the S&P on an annualized basis by just as much as growth outperformed value in the prior year,” Chiavarone told CNBC’s “Trading Nation” on Tuesday. “This is a story that has a lot of legs.”
Using the Dow Jones Dividend Select index as his proxy, Chiavarone adds that the group is comparatively cheap, trading at a roughly 8 to 10 multiple discount to the S&P 500. With rates likely to rise, Chiavarone sees this as a potential positive for dividend investors, too.
“An instrument that pays a regular payment, whether that’s a coupon bond or a dividend-paying stock, has a shorter duration than a growth stock or a noncoupon-paying bond, and in an environment of rising rates, you want to be shorter duration,” said Chiavarone. “This is our highest conviction call. We think dividends have a long way to run here.”
One name stands out to Danielle Shay, director of options at Simpler Trading, who also says now is a prime time to invest in dividend stocks — Brookfield Renewable.
“This company creates renewable energy facilities all over the world, and it’s a low-priced stock and it has a 2.86% dividend yield. So this is one in particular that I’m playing,” Shay said during the same interview.
Brookfield, a company with a $15 billion market cap, has underperformed this year. It has fallen 27% in 2021, but that has brought its price-to-sales ratio down to a 3.6 times forward multiple from nearly 9 times at the beginning of the year.
“It’s a great idea for investors to look around for dividend plays right now because I really do not think we’re going to see the strength in the S&P that we saw last year, and so for that reason especially, it’s a great time to look for some more dividend plays,” she said.
