Dividend Aristocrats Index rises

This article was last updated on April 16, 2022

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The S&P 500 Dividend Aristocrats Index, which according to Standard & Poor’s highlights the "true blue-chip companies” with a "policy of increasing dividends,” have been the market’s dirty punch line the last three years, getting neglected in the comeback rally as traders chased high-beta performers and taking a hit during the credit crisis as many financials were forced to cut payouts. This may no longer be the case going forward.

The SPDR S&P Dividend ETF, which tracks the Aristocrats index, is up more than five percent in the last month, compared to a 3 percent gain for the whole S&P 500. It extended that lead last week after General Electric hiked its payout by 20 percent.

GE’s “dividend hike suggest that management believes that the improvement in earnings is real and sustainable,” wrote Ed Yardeni, President & Chief Investment Strategist of Yardeni Research. "My hunch is that the blue chips might outperform the broader market over the rest of the year."

Companies in the S&P 500 currently have the most cash relative to assets on record. That will lead to more payouts, more buybacks and more merger activity, investors said.

AT&T shares jumped today after Deutsche Bank upgraded the stock, saying they "expect the company to boost its dividend by 2.5 percent in late 2011 for the 27th consecutive year.” The analyst, Brett Feldman, also wrote that AT&T can afford an $8 bln buyback.

"Uncertainty remains at very high levels for the investing community and high dividend paying stocks allow investors to stay in the market vs. going to cash and missing that next big rally while feeling `protected’ if the market sells off," said Stuart Frankel’s Steve Grasso, who sees the orders from some of the very biggest investors on Wall Street down at the New York Stock Exchange. Grasso is also a ‘Fast Money’ trader.

To be sure, this investment class could turn back into a cruel joke if Congress lets the Bush tax cuts on dividends expire at the end of this year. That is not necessarily a done deal as some Democratic dissenters have started to say we should leave these investing ‘aristocrats’ alone

For the best market insight, catch ‘Fast Money’ each night at 5pm ET and the ‘Halftime Report’ each afternoon at 12:30 ET on CNBC. 

Ref: http://www.cnbc.com/id/38414247

John Melloy is the Executive Producer of Fast Money. Before joining CNBC, he was an editor for Bloomberg News, overseeing the U.S. Stock Market coverage team

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