We believe the drivers that have resulted in historical stock market outperformance from high-yielding equities remain intact. Briefly, valuations of high-yielding stocks benefit from the capital discipline dividends impose on management, dividends enjoy favorable tax treatment relative to interest income and growth in dividends can provide a measure of inflation protection for portfolio income.
We believe the current environment remains very favorable for high-yielding stocks for two reasons; 1) the expected decline in interest-rate sensitivity which contributed meaningfully to the underperformance of these stocks, and 2) the likelihood that healthy corporate balance sheets and earnings growth can fuel strong dividend growth in the future. When considered in total, we believe a diversified portfolio of high-yielding equities (or a mutual fund focused on higher-yielding stocks) continues to provide a compelling source of investment income relative to other alternatives.
Source: Value Walk
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