Dividend stocks may start becoming more attractive to investors as the Federal Reserve cuts rates, but for Federated Hermes’ Daniel Peris they have always been in vogue. For more than two decades, the senior portfolio manager has found value and rising income in dividend stocks, as many others in the market have focused on large-cap growth equities. “The people who want us, find us and sleep at night,” said Peris, who manages the Strategic Value Dividend Fund and the U.S. Strategic Dividend exchange-traded fund . He also heads the firm’s income and value group and is the author of several books, including his latest, “The Ownership Dividend.” “The people who want much higher octane, much more excitement, they find that and they do that, and they’ve had a great run,” he added. SVAAX YTD mountain Strategic Value Dividend Fund year to date Those investors looking for income have turned to the bond market over the last couple of years as interest rates climbed. Now that the central bank has started its rate-cutting cycle, people may turn to dividend-paying equities as their yields start to appear relatively more attractive than Treasury yields. In addition, the stocks may provide a rising, steady income and can be seen as a ballast during times of market volatility. What investors should also keep in mind is the real return they can get on dividend stocks, after accounting for inflation, Peris said in an interview with CNBC. “If we’re heading back into an environment of non-zero inflation in all of our businesses, then having the concept of a real return, nominal return, an income level that’s upfront, and dividend growth to help offset inflation becomes more meaningful,” he said. “That has not been significant for the prior 15 years, up until recently, when inflation was so low.” What to look for in dividend stocks Peris leans more “old economy” when looking for stocks, focusing on names that are everyday brands that people know. “[People] pay these companies every single day — food, beverage, tobacco, household products, utilities, some large energy pipeline companies and integrated energy names,” he said. Then he looks at the payouts, focusing primarily on high-dividend paying stocks with dividend growth potential. The U.S. Strategic Dividend ETF has an adjusted expense ratio of 0.5% and 3.19% 30-day SEC yield. A-shares of the Strategic Value Dividend Fund (SVAAX), which have an adjusted expense ratio of 1.06%, have a 30-day SEC yield of 3.27%, as of Sept 30. Here are the top holdings in SVAAX, as of Aug. 30. “One of the things I think investors need to do is not just assume because the word dividend or income equity income is in the name of a product, that they’re getting the same income stream. They’re not,” Peris said. “Not all equity income products are the same.” He also looks for companies that have a sustainable business model over a long period of time. “The dividend investor’s focus has to be, by definition, on — does this income stream add up? Is it sustainable? Is the business in itself sustainable — the profits, the share, the growth, the margins, etc., capital expenditures?” Peris said. “That’s what we’re looking for over long periods of time. New era for dividend investing Peris believes there is a new era underway as more companies begin to pay dividends. It used to be the norm that companies paid dividends, but dividend-focused investing has been out of favor for about three decades amid the rise of stock buybacks and Silicon Valley tech companies, he said. Now, as income investors have more choices, he expects they will increasingly put pressure on companies to pay up. However, it will take some time, Peris said. He first made the argument in his book, “The Ownership Dividend,” which came out earlier this year. Since then, Meta , Alphabet , Salesforce and Booking Holdings have all announced they were initiating dividends. While they aren’t large payouts, the moves were symbolic, he said. “The role of the dividend from these very large companies is going to have to increase,” Peris said. “To compete for capital in a non-zero interest rate world, companies are going to have to come to market with non-zero interest-rate, cash returns. Buybacks currently meet that standard for many investors, but not for all.”
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