One aspect of the investing climate in 2014, due to the Fed's low interest rate policy, has been investor interest in dividend yielding equities. Finding dividend payers from companies that comprise the S&P 500 Index has become less difficult over time as more companies within the index pay a dividend. As the below table shows, 423 issues in the index now pay a dividend. From a performance perspective, we have highlighted the returns of the payers versus the non-payers from time to time.
In looking at the returns below, on an average return basis the non-payers of the index have outperformed the payers through the first eleven months of this year, 15.58% versus 14.57%, respectively. Comparatively though, both the payers' and non-payers' average return has outpaced the cap weighted return of the S&P 500 Index itself. A part of the reason behind this has been the underperformance of a number of the mega cap stocks.
The second chart below compares the price return of the Guggenheim Russell Top 50 Mega Cap ETF (NYSE:XLG) to the S&P 500 Index. The mega cap stocks have underperformed the S&P 500 Index by almost 100 basis points or one full percentage point.
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The fact the Fed has stated it has ended the quantitative easing programs is no longer new news. Given this fact, it is anticipated the Fed will begin raising interest rates sometime in 2015. In a rising rate environment stocks can continue to perform well; however, the initial rate move can result in equities briefly turning lower.
Some yield sensitive assets dropped lower after the release of the job report on Friday, specifically REITs and utilities. Consequently, investors will need to be aware of the sensitivity of yield equities (and bonds for the matter) when rates are initially increased.