Profile image
By ETF Daily News (Reporter)
Contributor profile | More stories
Story Views

Last Hour:
Last 24 Hours:

BlackRock: Investors Should Target Dividend Growers For Income

Tuesday, November 8, 2016 13:17
% of readers think this story is Fact. Add your two cents.

We see rising interest rates ahead, but this headwind for income equities doesn’t weaken the case for all dividend-paying stocks. BlackRock’s Richard Turnill explains why with the help of this week’s chart.

Investors starved for yield have flocked to stocks offering dividend income. We see rising interest rates ahead, but this headwind for income equities doesn’t weaken the case for all dividend-paying stocks, we believe. This week’s chart helps explain why.


Equities now provide roughly 75% of the income in a typical 60-40 portfolio of global equities and bonds, as evident in the chart above. They became the key income source as low growth and excess global savings helped push bond yields to record lows. We see equities as the dominant source of income going forward, as we expect only moderately rising rates and ongoing high demand for income from aging populations.

A preference for dividend growers

Dividend income is poised to become a larger component of lower overall portfolio returns over the next five years, BlackRock analysis suggests. Bond yields have likely bottomed out, and we don’t see scope for big rises in already elevated stock market valuations amid tepid earnings growth.

High-yielding dividend stocks typically suffer more when rates rise than dividend growers — quality companies with enough free cash flow to sustain dividend increases over time. Yet even many of these stocks could generate positive returns in a gradually rising yield environment. Thanks to the power of compounding dividends and earnings growth, valuations of global developed stocks would need to fall by roughly 30% over the next five years to generate negative returns for investors, our return assumptions suggest. We view this as unlikely.

We see higher inflation expectations, rather than rising real yields, driving rises in nominal bond yields. This bodes well for dividend growers and strengthens our preference for these stocks. They tend to be more resilient amid rising rates and outperform when rising rates are driven by higher inflation, our analysis finds. Dividend growers are typically able to raise prices, and dividends, in reflationary environments.

The key risk? A sharp rise in real (inflation-adjusted) interest rates. This would make bonds more attractive and diminish appetite for dividend stocks overall. For now, we see dividend growth opportunities globally within the technology, consumer discretionary and financials sectors. Read more market insights in my Weekly Commentary.

The iShares Select Dividend ETF (NYSE:DVY) rose $0.50 (+0.60%) to $83.87 per share in Tuesday afternoon trading. Year-to-date, DVY has gained 11.62%.

This article is brought to you courtesy of BlackRock.

You are viewing an abbreviated republication of ETF Daily News content. You can find full ETF Daily News articles on (


We encourage you to Share our Reports, Analyses, Breaking News and Videos. Simply Click your Favorite Social Media Button and Share.

Report abuse


Your Comments
Question   Razz  Sad   Evil  Exclaim  Smile  Redface  Biggrin  Surprised  Eek   Confused   Cool  LOL   Mad   Twisted  Rolleyes   Wink  Idea  Arrow  Neutral  Cry   Mr. Green

Top Stories
Recent Stories



Top Global

Top Alternative



Email this story
Email this story

If you really want to ban this commenter, please write down the reason:

If you really want to disable all recommended stories, click on OK button. After that, you will be redirect to your options page.