Why Are Investors Turning to Dividend Strategies?
14 November 2024
Over the first nine months of 2024, global dividend ETFs listed on Europe’s stocks exchanges gathered €2.2 billion of inflows3, which we believe could grow to €3 billion by the year end. That compares with €2.8 billion in 2022, the previous record, and just under €2.0 billion in 2022.
Retail investors seeking potential income through savings schemes have been among the biggest sources of demand, with the VanEck Morningstar Developed Markets Dividend Leaders UCITS ETF experiencing strong inflows from them in Germany especially. But wealth managers and banks have also been strong buyers of High-Dividend Strategies.
Estimated Flows in Global Dividend ETFs in Europe, million EUR
Source: Morningstar.
As interest rates have fallen in Europe, so the income paid by dividend stocks stands out. Many dividend stocks still yield over 5% at the time of writing, which is considerably more than government bonds and cash accounts.4
With populations ageing, there’s burgeoning demand for reliable income in retirement. For instance, in Germany more than a fifth of the population is aged 65 or older. By 2050, that number is expected to be almost a third. These retiring baby boomers’ investment priorities are shifting from capital appreciation to income and wealth preservation.
Risk tolerance tends to fall with age, but rather than relying on fixed income strategies investors appear to be turning to dividend strategies with their potentially relatively higher real income yields.
Dividend Yields
Source: Morningstar Direct.
Multiple expansion and capital inflows have driven up prices, though not excessively, as a response to declining interest rates. This trend has compressed yields, making it increasingly challenging to find value in high-dividend stocks, which could enhance the appeal of growth stocks. Over the past year, global dividend yields have decreased by approximately 16%—with the estimated yield for the Morningstar Developed Markets Large and Mid-Cap Screened Select Index declining from 2.1% to 1.75%.5 In contrast, the stocks in the High Dividend index have shown resilience, experiencing only a modest decline from 5.45% to 5.33%, which is still less pronounced than the potential decrease observed in fixed income yields.
High dividend strategies are not primarily designed to outperform broader market benchmarks consistently. Instead, they aim to provide investors with a reliable source of dividend income that complements their core portfolio allocation. While dividend stocks have demonstrated strong long-term performance, they have also experienced periods of underperformance relative to the broader market, largely due to its underweight position in low dividend paying growth stocks.
If the shine comes off technology stocks in a world where rates fall but don’t approach the ultra-low levels of the 2010s, then the contribution of dividends to long-term capital returns may come to the fore once more. In that case, investors would have even more reason to turn to dividend strategies than the evident income advantages. Please remember that financial markets are constantly changing and investing in Dividend ETFs involves Risk, including Equity market risk and foreign currency risk. Please refer to the KID and the Prospectus for other important information before investing.
1 Source: Morningstar Direct.
2 Past performance is not guarantee of future results.
3 Source: Morningstar Direct.
4 At the end of September, the yield on the Morningstar Developed Markets Dividend Leaders Index was 5.33%.
5 Source: Morningstar Direct.
IMPORTANT INFORMATION
This is a marketing communication for professional investors only. Please refer to the UCITS prospectus and to the Key Investor Information Document (KIID) before making any final investment decisions.
This information originates from VanEck Securities UK Limited (FRN: 1002854), an Appointed Representative of Sturgeon Ventures LLP (FRN: 452811) which is authorised and regulated by the Financial Conduct Authority in the UK. The information is intended only to provide general and preliminary information to FCA regulated firms such as Independent Financial Advisors (IFAs) and Wealth Managers. Retail clients should not rely on any of the information provided and should seek assistance from an IFA for all investment guidance and advice. VanEck Securities UK Limited and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Information provided by third party sources is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Brokerage or transaction fees may apply.
VanEck Asset Management B.V., the management company of VanEck Morningstar Developed Markets Dividend Leaders UCITS ETF (the "ETF"), a sub-fund of VanEck ETFs N.V., is a UCITS management company incorporated under Dutch law and registered with the Dutch Authority for the Financial Markets (AFM). The ETF is registered with the AFM, passively managed and tracks an equity index. Investing in the ETF should be interpreted as acquiring shares of the ETF and not the underlying assets.
Morningstar, Morningstar Indexes and Morningstar® Developed Markets Large Cap Dividend Leaders Screened Select IndexSM are registered trademarks of Morningstar, Inc. The Morningstar® Developed Markets Large Cap Dividend Leaders Screened Select IndexSM has been licensed to VanEck Asset Management B.V. for the purpose of creating and maintaining the VanEck’s ETF. VanEck’s ETF is not sponsored, endorsed, sold or promoted by Morningstar, Inc., or any of its affiliates (collectively, “Morningstar”) and Morningstar makes no representation regarding the advisability of investing in it. It is not possible to invest directly in an index.
Investors must read the sales prospectus and key investor information before investing in a fund. These can be obtained free of charge at www.vaneck.com, from the local information agent Computershare Investor Services PLC or from the Management Company.
All performance information is based on historical data and does not predict future returns. Investing is subject to risk, including the possible loss of principal.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
© VanEck Securities UK Limited
Important Disclosure
This is a marketing communication for professional investors only. Please refer to the UCITS prospectus and to the Key Investor Information Document (KIID) before making any final investment decisions.
This is a marketing communication for professional investors only. Please refer to the UCITS prospectus and to the Key Investor Information Document (KIID) before making any final investment decisions. This information originates from VanEck Securities UK Limited (FRN: 1002854), an Appointed Representative of Sturgeon Ventures LLP (FRN: 452811) which is authorised and regulated by the Financial Conduct Authority in the UK. The information is intended only to provide general and preliminary information to FCA regulated firms such as Independent Financial Advisors (IFAs) and Wealth Managers. Retail clients should not rely on any of the information provided and should seek assistance from an IFA for all investment guidance and advice. VanEck Securities UK Limited and its associated and affiliated companies (together “VanEck”) assume no liability with regards to any investment, divestment or retention decision taken by the investor on the basis of this information. The views and opinions expressed are those of the author(s) but not necessarily those of VanEck. Opinions are current as of the publication date and are subject to change with market conditions. Certain statements contained herein may constitute projections, forecasts and other forward-looking statements, which do not reflect actual results. Information provided by third party sources is believed to be reliable and have not been independently verified for accuracy or completeness and cannot be guaranteed. Brokerage or transaction fees may apply.
All performance information is based on historical data and does not predict future returns. Investing is subject to risk, including the possible loss of principal.
No part of this material may be reproduced in any form, or referred to in any other publication, without express written permission of VanEck.
© VanEck Securities UK Limited
