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Markets in a Minute

Dividend Stocks: Driving Value in Volatile Markets

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This Markets in a Minute Chart is available as a poster.

Dividend Stocks: Driving Value in Volatile Markets

This Markets in a Minute Chart is available as a poster.

Dividend Stocks: Driving Value in Volatile Markets

When markets take a turn for the worse, dividends often can provide a buffer against the drop.

Year after year, dividend-paying companies put money into shareholders’ pockets—and may offer much needed stability during periods of high volatility. Dividend investing can help offset unexpected downturns by generating a key source of income.

In today’s Markets in a Minute chart from New York Life Investments, we explore how dividends can help lower risk within investors portfolios when markets enter turbulent territory.

The Appeal of Dividends

Over the last two decades, dividend-paying companies have outperformed the S&P 500 in 12 of 20 years, including in all five years where the S&P 500 finished the year in negative territory.

Year S&P 500 Total Return (TR)Dividend-Paying Stocks* Total Return (TR)Top performer
2000-9.1%10.1%Dividends
2001-11.9%10.8%Dividends
2002-22.1%-9.9%Dividends
200328.7%25.4%S&P 500
200410.9%15.5%Dividends
20054.9%3.7%S&P 500
200615.8%17.3%Dividends
20075.5%-2.1%S&P 500
2008-37.0%-21.9%Dividends
200926.5%26.6%Dividends
201015.1%19.4%Dividends
20112.1%8.3%Dividends
201216.0%16.9%Dividends
201332.4%32.3%S&P 500
201413.7%15.8%Dividends
20151.4%0.9%S&P 500
201612.0%11.8%S&P 500
201721.8%21.7%S&P 500
2018-4.4%-2.7%Dividends
201931.5%28.0%S&P 500

*Dividend stocks represented by S&P 500 Dividend Aristocrat Index. Past performance is no guarantee of future results.

What sets dividend-paying companies—and especially those that continually grow their dividends—apart from the herd?

Wide Moats: A Competitive Advantage

While dividend growth signals company strength, it can also indicate that the company has an economic moat—a sustainable competitive advantage. This means two things: the company can raise prices, and keep competitors at bay. For shareholders, this signals a stronger likelihood of profitability, and more sustainable dividend payouts.

Reinvested Income Fuel Returns

Between 1926 and 2018, reinvested dividend income accounted for 33% of total equity returns in the S&P 500.

While capital appreciation is an undisputed factor in building wealth, it’s easy to forget the sheer force of dividends.

Strong Balance Sheet

A company’s ability to pay steady dividends is critical. Dividends are drawn from a company’s cash balance, which must be sufficient during both strong and lackluster financial conditions.

Ultimately, this cash allocation represents a conservative and disciplined approach to the company balance sheet—demonstrating a commitment to shareholders.

“At the end of the day, dividends are not being paid with margins; dividends are paid with earnings per share.”

—Joe Kaeser

Cushion Against a Shock

When markets turn sour, income from dividend payouts can offer a key lifeline.

The ability for dividend payers to generate superior risk-adjusted returns is demonstrated across their Sharpe ratios, with a higher number indicating a more attractive risk/return profile.

For instance, between 1990-2018, The S&P 500 Dividend Aristocrat Index—a basket of stocks that have paid consistent, increasing, dividends over 25 years— averaged a Sharpe ratio of 0.7 compared to the S&P 500’s 0.4.

Alongside this, a number of dividend payers have outperformed the S&P 500 in every down year since 2000.

YearS&P 500 Total Return (TR)Dividend-Paying Stocks* Total Return (TR)
2000-9.1%10.1%
2001-11.9%10.8%
2002-22.1%-9.9%
2008-37%-21.9%
2018-4.4%-2.7%
Total Years Dividend-Paying Stocks (TR) Outperformed5

*Dividend stocks represented by S&P 500 Dividend Aristocrat Index. Past performance is no guarantee of future results.

Even during dismal years, dividend payers have shown notable returns.

A Powerful Tool in Today’s Market

As COVID-19 continues to drive further volatility in the market, dividend investing may offer investors both stability and strong income to help weather the storm.

Of course, not all dividend-payers can be expected to be winners. Careful analysis of financial statements and management track records is required to identify companies with the strongest fundamentals.

While dividend payers can help provide a shield in volatile markets, they double as a significant driver of wealth creation over time.

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Markets in a Minute

What Were the Top Performing Investment Themes of 2023?

In 2023, several investment themes outperformed the S&P 500 by a wide margin. Here are the top performers—from blockchain to AI.

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The Top Performing Investment Themes in 2023

This was originally posted on our Voronoi app. Download the app for free on iOS or Android and discover incredible data-driven charts from a variety of trusted sources.

While the S&P 500 rebounded over 24% in 2023, many investment themes soared even higher.

In many ways, the year was defined by breakthrough announcements in AI and the resurgence of Bitcoin. At the same time, investors looked to nuclear energy ETFs thanks to nuclear’s growing role as a low carbon energy source and the war in Ukraine.

This graphic shows the best performing investment themes last year, based on data from Trackinsight.

Blockchain ETFs Lead the Pack

With 82% returns, blockchain ETFs outperformed all other themes in the U.S. due to the sharp rise in the bitcoin price over the year.

These ETFs hold mainly bitcoin mining firms, since ETFs investing directly in bitcoin were not yet approved by regulators in 2023. However, as of January 2024, U.S. regulators have approved 11 spot bitcoin ETFs for trading, which drew in $10 billion in assets in their first 20 days alone.

Below, we show the top performing themes across U.S. ETFs in 2023:

Theme2023 Performance
Blockchain82%
Next Generation Internet80%
Metaverse59%
FinTech54%
Nuclear Energy50%
Cloud Computing49%
AI/Big Data49%
Gig Economy48%
Digital Infrastructure & Connectivity43%

As we can see, next generation internet ETFs—which include companies focused on the internet of things and new payment methods—also boomed.

Meanwhile, nuclear energy ETFs had a banner year as uranium prices hit 15-year highs. Investor optimism for nuclear power is part of a wider trend of reactivating nuclear power plants globally in the push towards decarbonizing the energy supply. In fact, 63 new reactors across countries including Japan, Türkiye, and China are planned for construction amid higher global demand.

With 49% returns, AI and big data ETFs were another top performing investment theme. Driving these returns were companies like chipmaker Nvidia, whose share price jumped by 239% in 2023 thanks to its technology being fundamental to powering AI models.

Top Investment Themes, by Net Flows

Here are the the investment themes that saw the highest net flows over the year:

Theme2023 Net Flows
Robotics & Automation$1,303M
Nuclear Energy$997M
AI/Big Data$987M
Global Infrastructure$734M
Net Zero 2050$716M
Blockchain$357M
Cannabis & Psychedelics$270M
Emerging Markets Consumer Growth$203M

Overall, ETFs focused on robotics and automation saw the greatest net flows amid wider deployment of these technologies across factories, healthcare, and transportation actvities.

The success of AI large language models over the year is another key factor in powering robotics capabilities. For instance, Microsoft is planning to build a robot powered by ChatGPT that provides it with higher context awareness of certain tasks.

Like robotics and automation, AI and big data, along with blockchain ETFs attracted high inflows.

Interestingly, ETFs surrounding emerging markets consumer growth saw strong inflows thanks to an expanding middle class across countries like India and China spurring potential growth opportunities. In 2024, 113 million people are projected to join the global middle class, seen mainly across countries in Asia.

Will Current Trends Continue in 2024?

So far, many of these investment themes have continued to see positive momentum including blockchain and next generation internet ETFs.

In many cases, these investment themes cover broad, underlying trends that have the potential to reshape sectors and industries. Going further, select investment themes have often defined each decade thanks to factors like technological disruption, geopolitics, and the economic environment.

While several factors could impact their performance—such as a global downturn or a second wave of inflation—it remains to be seen if investor demand will carry through the year and beyond.

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Markets in a Minute

Ranked: What People Value Most in a Financial Advisor

Positive reviews and recommendations are some of the least important factors—so what do people look for in a financial advisor?

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A bar chart of what people value in a financial advisor, showing that personalization is related to three of the top four answers.

Ranked: What People Value Most in a Financial Advisor

Are advisors putting their focus where it matters? You might think that positive reviews and recommendations would be a top consideration for people choosing a financial advisor. However, other qualities appear to be much more important.

This graphic uses data from Morningstar’s Voice of the Advisor report to outline what people value most in a financial advisor.

The Qualities Investors Value

Morningstar surveyed 400 people: 100 Caucasian women, 150 women of color, and 150 men of color. The values below show how often people chose an item as most or least important when working with an advisor.

QualityMost ImportantLeast Important
Expertise and knowledge in financial planning and investments60%11%
Personalized financial advice that meets my specific goals and needs54%16%
Ability to understand my risk tolerance and appropriately align my investments47%17%
Specialization in specific financial situations, such as retirement planning45%17%
Ability to communicate complex financial concepts in an understandable way42%22%
Transparent fee structure and pricing for my advisor’s services42%22%
Trust and rapport established during the initial meetings with my advisor36%24%
Ability to incorporate investment options that reflect my values22%41%
Positive online reviews or ratings about my advisor’s services22%46%
Recommendations from friends or family who had a positive experience with my advisor20%47%
Commitment to diversity and inclusion, making me feel comfortable and respected20%47%
Recommendations from other professionals, such as accountants or attorneys19%50%
Shares a similar background or cultural understanding10%68%

Participants were asked the following question: “On each screen, we will show you 3 items to think about when working with a financial advisor. Select which one is most important and which one is the least important of the items. You will see more than one screen and items may appear more than once.”

Enjoying this content? Dive into more insights in the Voice of the Advisor Report:

Report cover titled Four Opportunities to Elevate the Advisor-Client Relationship through Personalization with additional report pages shown. There is also a red button that says Click for exclusive insights.

Even among a survey pool that was mostly people of color, the majority of respondents didn’t think a commitment to diversity or a shared background were important.

Instead, three of the top four factors were related to personalization.

Personalization: A Key Quality in a Financial Advisor

People cared deeply about personalization regardless of gender and race. It was even more important to those with more than $250,000 in assets, suggesting that personalization may become more critical as a person’s portfolio value increases.

Even investors not currently working with an advisor and non-investors noted that personalization would be a top quality they would look for in a financial advisor.

Within personalization, people noted risk management was a very important element. Financial advisors can highlight their ability to tailor financial plans based on each person’s risk tolerance in order to attract clients.

Looking for tips on how to grow your advisory business? Get insights on what investors want, and how other advisors are evolving, in Morningstar’s Voice of the Advisor report.

Report cover titled Four Opportunities to Elevate the Advisor-Client Relationship through Personalization with additional report pages shown. There is also a yellow button that says get the free report now.

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