In reflecting on the final trading day of 2023, investors are already gearing up for the prospects of 2024, exploring new avenues for potential investments. While the year showcased the dominance of the Magnificent Seven and the S&P 500, attention is shifting toward “dividend aristocrats” as inflation cools and interest rate cuts loom.
Roundhill Investments Chief Strategy Officer Dave Mazza joins Yahoo Finance to shed light on the significance of “dividend aristocrats” and why they should capture investors’ attention in 2024.
Mazza explains that a “dividend aristocrat” is a company that has consistently increased its dividend each year for 20 or 25 years. Going a step further, there are even more stringent categories like “dividend kings” or “dividend monarchs,” requiring 50 years of consecutive dividend increases. These companies exhibit resilience, backed by robust free cash flow, making them appealing to investors.
As 2023 witnessed substantial gains for tech giants Tesla, Nvidia, and Apple, powered by various technology and AI trends, the focus is expanding beyond the tech sector. The discussion delves into the potential benefits of including dividend aristocrats in portfolios, particularly during times of market volatility.
In a broader context, Mazza emphasizes that these elite dividend-growers have been out of favor despite their historical resilience. The S&P high-yield dividend aristocrats index faced its worst-ever relative performance compared to the S&P 500 last year, mainly due to its underweight exposure to technology and overweight positioning in staples and utilities. Historically, these sectors have thrived during periods of rate cuts.
While the Magnificent Seven may continue to drive the market higher in 2024, Mazza suggests that considering dividend aristocrats is a strategic move, given their resilience and ability to weather market fluctuations. This perspective challenges the conventional wisdom of rotating out of mega-caps and into small caps, as small-cap companies often face profitability challenges.
In conclusion, Mazza highlights the attractiveness of staying with high-quality names, particularly in the elite dividend-growth space. As investors navigate the uncertainties of the coming year, dividend aristocrats present themselves as a potential haven of stability and consistent returns.
