Here's Why High Dividend Stocks Remain An Attractive Choice

According to analysts, global companies that have had a growing or stable dividend policy over the past 10 years could yield up to 5.41%, Fineco Asset Management's investment team says.

The average yields on saving accounts across Europe are basically close to zero, while those of government bonds are mostly below 1% (for example, Italian 10-year BTPs currently yield less than 0.50%): such an environment makes investing in high dividend stocks an attractive choice.

A Less Marked Dividend Decrease Compared To 2007-2009: "A valid consideration also in light of the economic crisis following the 2020 pandemic is that there was an impact on global dividends but to a lesser extent than it could be expected," as reported by the Fineco Asset Management Investment Team.

As a matter of fact, although after the 2008 Global Financial Crisis the average dividend paid by global companies fell by 7.95% (between 2007 and 2009), the decline stopped at 3.4% between 2019 and 2020. Such divergence is due to the fact that not all market sectors were affected, and credit remained available thanks to unprecedented monetary and fiscal policy measures.

Pepsi Co, Procter & Gamble, and Johnson & Johnson: “While a number of industries - particularly those related to services, as well as non-online retail and travel industry - have suffered significantly, companies pertaining to other industries like Pepsi Company Inc. PEP, Procter & Gamble Co. PG and Johnson & Johnson JNJ managed to increase coupons in 2020," the team noted, adding, "In other cases, companies like Vodafone Group Plc VOD have maintained their dividend. On the other hand, the provisions imposed in the banking sector by the regulators resulted in the suspension of dividends, since it was preferred to maintain capital in banks as a precautionary measure.”

Cautious Optimism: Looking forward, expectations are based on cautious optimism — economies reopening and the global vaccination plan should lead to an increase in spending on services and capital goods. Such a scenario will inject confidence in the management boards, thus prompting companies to review their dividend policy.

The Price/Earnings Ratio (P/E): As for valuations, while stocks, in general, are not currently cheap relative to historical prices, it’s also true that high-yield dividend stocks are one of the few areas of the stock market which are close to their historical averages.

"At the moment, the price-to-earnings (p/e) ratio of these stocks is 12.9 times the expected profits within the next 12 months, a level equal to their historical ten-year average and a much more reasonable level than the broader stock market, which trades at 18.2 times future profits against a ten-year average of 14.2. As for global growth stocks, the valuation is equal to 3.7 times 1-year sales, compared to only 1.5 times for the high-yield global stocks,” the Investment Team of Fineco Asset Management said.

A 2% Return This Year And A 2.16% Return In 2022: Which return will global stocks offer in 2021? After yielding an average of 1.84% in 2020, analysts expect global stocks can return 2% this year and 2.16% in 2022.

"For those global stock companies that have had a growing stable dividend for at least the last 10 years, analysts collectively expect they can yield up to 5.41% in 2021", the investments team of Fineco Asset Management noted, considering these stocks have lagged the broader market in the past year and have not yet fully recovered from the 2020 correction.

This article originally appeared on Financialounge.com and was translated from Italian to English. It does not represent the opinion of Benzinga and has not been edited. For news coverage in Italian or Spanish, check out Benzinga Italia and Benzinga España.