Dividends Hit a Rough Patch

THERE is a doctrine T that one year's investment champions become the subsequent year's failures.

- JEFFREY R. KOSNETT

In 2023, this again is true, but the fallen heroes are unexpected: high-dividend-yield stocks and funds. The puzzle is whether dividend-focused strategies are set for years of relative decline, or if this is a case of massive short-term outperformance predictably returning to earth. I vote for the latter.

The backdrop: In 2022, high-dividend shares, led by energy and utilities, were the stoutest line of defense, along with the Dogs, the highest-yielding listings in the broad averages or each industry sector. Exchange-traded fund ALPS Sector Dividend Dogs (symbol SDOG) lost just 0.2% last year as the S&P 500 index, including dividends, disgorged 18.1%. The ETF starts each year with equal stakes in the five highest-yielding members of 10 S&P 500 sectors (excluding real estate). So it's an indication broadly of whether big dividends are in or out of favor. Four times since 2013, the fund placed in the best 25% by total return among its Morningstar peers. (Funds I like are in bold; prices and returns are as of July 31 unless otherwise noted.)