Investors should eye the S & P 500 Dividend Aristocrat Index as Wall Street looks to the Federal Reserve to start loosening interest rate policy next month, according to Wolfe Research. That is because stocks in the dividend aristocrat index — those that have consistently raised their payouts in each of the past 25 years — have historically outperformed the broader market after the first interest rate cut in five prior cycles going back to 1995, according to Wolfe Research chief investment strategist Chris Senyek. The stocks' dividend yields become more attractive to investors compared to declining yields on cash accounts, whether money market funds, CDs or Treasury bills and companies' borrowing costs come down.
The dividend aristocrats index has notched median gains of 5.8% and 7.6% in the first six and 12 months following an initial rate cut in past easing cycles, Senyek noted, adding that the index outperformed compared to other dividend strategies.
Investors can take advantage of this investment strategy by using the S & P 500 Dividend Aristocrats ETF (NOBL) , which has a 2024 total return — capital gains plus dividends — of nearly 10% this year. The exchange-traded fund tracks an equal-weighted index of all S & P 500 stocks that have raised their dividends annually for at least 25 years. Looking for strategies that might hold up best comes as the Dow Jones Industrial Average closed at an all-time high on Monday for the first time since the middle of July.
Only a pullback in the technology sector kept the S & P 500 from reaching its own record, and the broad market index is still less than 1% below its own mid-July record high. NOBL YTD mountain The S & P 500 Dividend Aristocrats ETF (NOBL). Meanwhile, opinion on Wall Street is unanimous that the Fed will lower the current 5.
25% to 5.50% fed funds rate by at least 25 basis points, or a quarter percentage point, at the central bank's Sept. 17-18 policy meeting, according to data from the CME Group's FedWatch Tool .
Wall Street's expectation for a cut next month was reinforced by comments from Federal Reserve Chair Jerome Powell on Friday signaling an imminent reduction in benchmark rates . Below is a selection of some of the components of the dividend aristocrats index, as well as their accompanying dividend yields. New Jersey-based pharmaceutical powerhouse Johnson & Johnson is among the health-care stocks in the aristocrats index.
J & J has returned 3% so far in 2024, yields 3.1% and dividends have grown 4% over the past year. Fast-food restaurant chain McDonald's is down 2% on a total return basis in 2024, but yields 2.
3% and has expanded the payout by 10% in the past 12 months. Construction equipment maker Caterpillar has fractionally outperformed the S & P 500 on a total return basis by rising 18% so far in 2024. While yielding 1.
8%, Caterpillar has lifted its dividend payment by 8% over the past year. — CNBC's Scott Schnipper contributed reporting..
