SSGA-SPDR: Sustainable Dividend Strategies Amid Uneven Recovery

SSGA-SPDR: Sustainable Dividend Strategies Amid Uneven Recovery


While ETF investors putting assets into dividend stocks may have been early, inflation fears would not suggest they were wrong. We join the consensus view that the inflation is a transitory dislocation between supply and demand as we emerge from a global lockdown. In a sense, consumers’ willingness to consume is front-running producers’ ability to re-stock the shelves, from both a manufacturing and service standpoint, thus driving pricing temporarily higher. The market is expected to digest these dislocations and allow investors to re-focus on earnings.

The current economic sentiment still provides a supportive case for dividend stocks based on recent earnings guidance, analyst projections and general optimism toward a continued economic recovery. Surveys of Consumer Confidence (US) and Economic Confidence (eurozone) had been trending positive prior to the global pandemic (see chart below). While the pandemic severely disrupted the trend, both confidence indicators have fully recovered to above their pre-pandemic trend.

2807 SPDR

We believe that the first half of 2021 was just the beginning, and the recovery trade will continue through the end of the year. The advantage that growth stocks experience from ultra-low interest rates may be reduced if yields continue to rise as inflation picks up. We expect the gap between growth and value to continue to close. Value factor ETF exposures have seen significant reflation. Dividend yield exposures could be next to benefit from a resumption of consumer activity.