Here's why 2023 could be another solid year for dividend stocks — and how to play it
Dividend stocks proved valuable for investors in a turbulent 2022, and many investment professionals are sticking with the group for next year. The SPDR Portfolio S & P 500 High Dividend ETF (SPYD) was down just about 1% for the year on a total return basis, easily outpacing the broader market. And with consensus expectations pointing to high interest rates and slow or even negative economic growth in 2023, dividend stocks could have quite a while left in the spotlight. "The value of dividends, which has been ignored for so long, has come into focus, and realistically is likely to stay in focus potentially for years. In any kind of lower return environment, the dividends sort of leap off the page as being something that are much more valuable," said John Porter, chief investment officer and head of equity at Newton Asset Management. Porter is not alone in that belief. Many major shops on Wall Street are bullish on dividend stocks in one form or another heading into 2023. Credit Suisse's strategist Andrew Garthwaite said in a note to clients that he was overweight dividend aristocrats, or stocks that have a long track record of growing their payouts. That group — as tracked by the ProShares S & P 500 Dividend Aristocrats ETF (NOBL) — has outperformed the broader market in 2022, losing less than 6% on a total return basis. The fund's top holdings include Air Products & Chemicals and Caterpillar . JPMorgan, in a note to clients from strategists Marko Kolanovic and Bram Kaplan, said they were bullish on dividends and dividend futures in part because "companies have been announcing better than expected dividend increases, corporate balance sheets are healthy, and the high oil prices are driving upside in Energy company dividends." Energy stocks, along with utilities and real estate, are well represented among the group of high-dividend stocks that are popular on Wall Street. The list below shows the S & P 500 members who have a dividend yield above 3% and a buy rating from at least 60% of analysts, according to FactSet. Two names not in the previously mentioned categories are Citizens Financial Group and toymaker Hasbro . Citizens' stock has shown strength recently and is up in the fourth quarter, while Hasbro has continued to slide amid criticism of its handling of the "Magic: The Gathering" card game . That fall has given Hasbro a dividend yield of more than 4.8%. To be sure, investing in dividend stocks can be tricky during economic downturns, as falling profits can lead to dividend cuts or even suspensions. Investors should keep in mind cash flow metrics when evaluating a company to gauge how safe a dividend is. Jefferies global head of microstrategy Desh Peramunetilleke said in a note to clients that the firm prefers "low risk" plays in both the utility and real estate sectors because of economic risks. One of the names on the list, Public Storage , has seen recent insider buying . Some professional investors see that as a vote of confidence from the boardroom about the future of the company. CNBC Pro's guide to investing in 2023 The Dow's yearly performance is beating the S & P 500 by the most in decades. Here's why 2023 should be a brighter year for the traditional 60/40 portfolio Top Wall Street strategists see a bumpy 2023 ahead with minimal returns for stocks The crypto investing outlook for 2023 after a 60% decline in bitcoin this year