As market volatility looms, it may be time to reexamine your portfolio exposure to dividend stocks.
Miramar Capital co-founder and senior portfolio manager Max Wasserman sits down with Madison Mills and Tematica Research chief investment officer Chris Versace on Catalysts to outline what investors need to know about dividend stocks.
To watch more expert insights and analysis on the latest market action, check out more Catalysts here.
The S&P 500 on track to snap a six-day long winning streak as fears creep in that a recent investor confidence has been overblown. Forget buying the dip though, our next guest says, it's time to derisk and instead focus on quality dividend paying stocks. Joining us to discuss whether this is the moment for dividends. We've got Max Wasserman, Miramar Capital co-founder and senior portfolio manager and still with us for the conversation, Chris Versace. Max, it's great to have you on. I've been trying to talk dividends for about six weeks. So I really appreciate you being here. Talk to me about why dividends make sense for investors right now.
Sure. Well, I'll say they make sense all the time, but if you go back to the 1920s, they say about 40% of the total return of the S&P 500 has been dividends. And in certain 10-year decade cycles, it's more and sometimes it's less. But the bottom line is you're getting paid to wait. Nobody can time this market up and down, and the cash flows coming in every quarter from the dividends and you get to reinvest it. So you can either take the money out or you can reinvest it the way you want to. And for people who live off income, you know, Treasury bonds giving, let's say 4%, three and a half. We look at a dividend growth portfolio. So we have about a 3% yield. So we're getting over 80% which you can get in the treasury plus growth. So for people who need cash flow, dividends are an excellent way. Also in terms of volatility, the market, if you go the first half of the year, the market's all over the place. Dividend stocks hold up better in times of you know craziness, volatility. So we like it. We think investors are overlooking the basics of investing. They just want to hyper growth, but it can go away in a moment. But dividends are steady, and for somebody who wants to be a long-term investor, we think dividends are the best place for it.
Was that shade towards the big tech stocks that I picked up on?
Yeah. You know, it's we own some big, you know, big tech stocks. We like them, but the valuations are out of control, right? 30, 40, 50 times earnings and some. And the market's overcrowded. Everybody buys the same seven, you know, you're looking at those stocks, we have some of them and they do pay dividends. Some do pay dividends, and they're paying more as time goes on. But for valuation level, we just don't think it's worth the risk to keep buying them, right? Buy them judiciously, we like, but the rest of the market, right? The rest of the market looks relatively inexpensive compared to the Nasdaq. And you we think if you can get 3, 4% yields in growing areas, that's a great place for the investor to be.
So what are some of those areas that you think are most, uh, entertaining, let's say now, for for investors?
Sure, you know, nobody likes pharmaceuticals right now. No, but you can't give pharmaceutical stocks away. But you know, companies like ABBV that we have an investment in, it's paying you 3 and a half percent, they're growing the dividend 8, you know, 8% a year. Financials selectively. We own a company called CME, right? Chicago Mercantile Exchange. They give, they pay about 4%. They give you a dividend of roughly about 2%, but they give you a fifth dividend at the end of the year, right, especially pay out all the profits usually to the people. Those are good things. Industrial stocks are are good. Energy, when nobody likes energy right now, they did about a quarter ago, and they're paying you 4, 5, 6%. So you do a mixture and you even throw retail stocks in there like the Home Depots of the worlds, which I know came out today, we like and you look at those, if you put them together, you have a good dividend portfolio with growth. And that's the key. We're not buying utilities, you know, we don't really don't own utilities in our portfolio. But we look at other areas in the market that are growing the dividends paying higher cash flow.
So let me ask you this. So you're talking about yields, you know, 3%, 6%. At what point do you use the dividend yield as a signal that something might be wrong? Is it 8%, 9%?
Oh, that's a great question. When we look at the dividend yield, we're looking at the payout ratio. Look at how much of the earnings are being paid out to cover that. And when a company is paying more than their earnings per share, right? That's that's a cause, or if they're telling us a slowdown in the dividend growth rate. So if you're starting to see a massive slowdown from a 10, 8, 5, 3, 2, there's something wrong with the cash flow. But it's us, it's a great valuation tool, right? The relative dividend yield to itself, right? What's its own payout ratio to the market, uh, to the treasury. We look at that compared to the treasury. So we look at it all, but it's an excellent valuation tool. But the payout ratio to us is one of the key things. You have to watch if how much earnings are coming in to how much you can pay out. And when a company starts getting 70, 80%, it's requires a lot of attention.
