During the COVID crisis, many dividend paying sectors such as airlines, hotels, energy and finance were forced to reduce or suspend their dividend payments. While some struggled to survive, others found themselves under regulatory pressure. In the US, a total of 242 companies decided to reduce or suspend dividend payments last year, almost as many companies as in the previous 11 years.
But dividend-paying companies seem to be turning the page on the pandemic. By May 31 of this year, 76 companies in the US had resumed dividend payments, according to Capital Group. With this, Gordon sees compelling opportunities to reap value for investors.
“I’m looking for companies that are yielding 2.5-3.0% and increasing their dividends and profits by 10% or 12% per year,” she said. “Today I find a number of companies that meet these criteria in a variety of sectors and global markets.”
While investors may prefer more income, Gordon said the decision to invest should go beyond high returns. Companies that pay fat dividends may struggle to maintain them later, she said, adding that a high dividend yield can also indicate that a company is a “melting ice cube” whose business is in decline and not supported by reinvestment .
Dividend growth, she argued, was a better sign of health. Aside from recommending a rigorous capital allocation process by management, she said rising dividends can help strengthen portfolios against the future risk of interest rate hikes.