What Makes Dividend Stocks Different
Gregory Powell, PhD
Gregory Powell, PhD
Chief Investment Officer
About the Video
At Miller/Howard, we think the best defense against multiple contraction is to stick with stocks that have relatively low P/E multiples. We are finding many stocks at reasonable valuations that offer potential returns primarily from dividends and earnings growth.
What Makes Dividend Stocks Different

Greg Powell: Hi, I’m Greg Powell, Chief Investment Officer at Miller/Howard Investments.

Like the broader market, returns for high-yield dividend stocks come from earnings growth, changes in price-to-earnings multiples and, naturally, dividends.

The real difference between high-yield dividend stocks and the broader market is the mix of sources of return. This chart shows the annualized decomposition of return for the S&P 500 Index compared to the high-yield dividend stocks within the S&P for the years 1993-2020. As you can see, high-dividend stocks performed slightly better over this period, with significantly more return coming from dividends.

It’s important to note that earnings growth was less for high-yield dividend stocks as a group. At Miller/Howard, we are acutely aware of this trend and that is why we focus our research process on finding dividend stocks with good earnings growth potential.

What might be surprising is that multiple expansion benefitted high-yield stocks more than the broad market.

We view the trend towards higher P/Es for the broad market to be a direct result of the long-term downward trend in interest rates. Investors have been using ever lower discount rates to evaluate earnings far into the future, driving up P/E multiples, particularly on mega-cap growth stocks.

Within the high-yield dividend stocks, the link between interest rates and P/E multiples primarily comes from the bond proxies. These are stocks with little earnings growth but steady dividends. As bond prices have inflated over time, it follows that the price of bond proxies would keep pace.

This chart shows the P/E of the two sectors with the most bond proxies, utilities and consumer staples. As you can see, the P/E for high-yield dividend stocks has moved up with the P/E of the bond proxy sectors.

We view it as unlikely that market P/E multiples will continue to expand over the long-term. This is based on two observations:

  • P/Es are well above their long-term average, and second...
  • Interest rates are low and more likely to rise than fall from the current level.

At Miller/Howard, we think the best defense against multiple contraction is to stick with stocks that have relatively low P/E multiples. We are finding many stocks at reasonable valuations that offer potential returns primarily from dividends and earnings growth.

Thank you for listening today, and for more information, please visit us at www.mhinvest.com.

DISCLOSURE

INVESTMENT PRODUCTS: ARE NOT FDIC INSURED - MAY LOSE VALUE - ARE NOT BANK GUARANTEED

Opinions and estimates offered constitute Miller/Howard Investments' judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. Nothing stated herein, including the mention of specific company names, should be construed as a recommendation to buy, hold, or sell any security, sector, or MLPs in general. To receive a list of all recommendations for the previous year, please email compliance@mhinvest.com. All investments carry a certain degree of risk, including possible loss of principal. It is important to note that there are risks inherent in any investment and there can be no assurance that any asset class will provide positive performance over any period of time. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass.

Common stocks do not assure dividend payments. Dividends are paid only when declared by an issuer’s board of directors, and the amount of any dividend may vary over time. Dividend yield is one component of performance and should not be the only consideration for investment.

The information above is from sources deemed to be reliable and is provided strictly for the convenience of our investors and their advisors. These materials are solely informational. Legal, accounting and tax restrictions, transaction costs, and changes to any assumptions may significantly affect the economics of any transaction.

The information and analyses contained herein are not intended as tax, legal, or investment advice and may not be appropriate for your specific circumstances; accordingly, you should consult your own tax, legal, investment, or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such appropriateness. Any investment returns — past, hypothetical, or otherwise — are not indicative of future performance.

Investment Decisions: Do not use this report as the sole basis for investment decisions. Do not select an allocation, investment discipline, or investment manager based on performance alone. Consider, in addition to performance results, other relevant information about each investment manager, as well as matters such as your investment objectives, risk tolerance, and investment time horizon.

The returns on a portfolio that utilizes environmental, social, or governance (ESG) criteria for stock selection may be lower or higher than portfolios where ESG factors are not considered, and the investment opportunities available to such portfolios may differ.

Past performance does not guarantee future results.

© 2024 Miller/Howard Investments.

DISCLOSURE

INVESTMENT PRODUCTS: ARE NOT FDIC INSURED - MAY LOSE VALUE - ARE NOT BANK GUARANTEED

Opinions and estimates offered constitute Miller/Howard Investments' judgment and are subject to change without notice, as are statements of financial market trends, which are based on current market conditions. Nothing stated herein, including the mention of specific company names, should be construed as a recommendation to buy, hold, or sell any security, sector, or MLPs in general. To receive a list of all recommendations for the previous year, please email compliance@mhinvest.com. All investments carry a certain degree of risk, including possible loss of principal. It is important to note that there are risks inherent in any investment and there can be no assurance that any asset class will provide positive performance over any period of time. The material may also contain forward-looking statements that involve risk and uncertainty, and there is no guarantee they will come to pass.

Common stocks do not assure dividend payments. Dividends are paid only when declared by an issuer’s board of directors, and the amount of any dividend may vary over time. Dividend yield is one component of performance and should not be the only consideration for investment.

The information above is from sources deemed to be reliable and is provided strictly for the convenience of our investors and their advisors. These materials are solely informational. Legal, accounting and tax restrictions, transaction costs, and changes to any assumptions may significantly affect the economics of any transaction.

The information and analyses contained herein are not intended as tax, legal, or investment advice and may not be appropriate for your specific circumstances; accordingly, you should consult your own tax, legal, investment, or other advisors, at both the outset of any transaction and on an ongoing basis, to determine such appropriateness. Any investment returns — past, hypothetical, or otherwise — are not indicative of future performance.

Investment Decisions: Do not use this report as the sole basis for investment decisions. Do not select an allocation, investment discipline, or investment manager based on performance alone. Consider, in addition to performance results, other relevant information about each investment manager, as well as matters such as your investment objectives, risk tolerance, and investment time horizon.

The returns on a portfolio that utilizes environmental, social, or governance (ESG) criteria for stock selection may be lower or higher than portfolios where ESG factors are not considered, and the investment opportunities available to such portfolios may differ.

Past performance does not guarantee future results.

© 2024 Miller/Howard Investments.

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