Forget about profits: stocks have two big tailwinds that propel them up

Trader on NYSE May 3, 2021.

Source: NYSE

It’s no longer just about profits: dividends and huge inflows are helping stocks fuel their powers.

April trading data is in, showing two surprises: a surge in dividends and huge inflows into stocks even stronger than in the first three months of the year.

Dividends are back

In April 2020, two dozen S&P 500 companies reduced or suspended their dividends. More suspensions and dividends came later in the year.

In April 2121, the opposite happened: 33 S&P 500 companies announced dividend increases. None announced a decline and none suspended dividends.

In particular, 11 companies that had suspended dividends in 2020 paid again in April:

Reinstatement of dividends
Ross Stores
HCA healthcare
Universal health services
McMoRan Freeport
Estee Lauder
Kimco Realty
Darden restaurants
Marathon oil

Three of them – TJX, HCA Healthcare, and Freeport McMoRan – are paying higher dividends than they were before the payments were suspended.

“The bottom line is that a year ago companies had no idea what was going on,” said Howard Silverblatt, senior index analyst at S&P Global Indices. “Now there is much better clarity and you are ready to put your money where your mouth is.”

Will it go on? Silverblatt estimates the dividend payout for the S&P 500 will increase 5% in 2021.

That would mean a payout to investors of around $ 515 billion, up from $ 483 billion in 2020.

“There’s money in your pocket,” Silverblatt told me. “Remember, when a company pays a dividend, it is expected to keep that dividend going. This is a company’s obligation, and you don’t make that decision lightly.”

Investors enthusiastic: The large inflows into ETFs are continuing

Almost record-breaking inflows into ESG, thematic technologies and other areas are also propping up prices.

Exchange-traded funds started the year with just under $ 6 trillion in assets under management, and inflows continued steadily every month through 2021.

According to ETF Trends, an additional $ 55 billion was invested in equity ETFs in April, representing a total inflow of $ 258 billion since the beginning of the year. There will certainly be much higher capital inflows in 2021 than in 2020, when panicked investors poured money into pension funds.

“The money comes from everywhere,” said Harry Whitton, senior vice president at Old Mission, an ETF market maker. “There are still people at home who are putting money into the markets. They are seeing a lot of interest in [Environmental, Social and Governance] ETFs. You can also see that money is flowing out of mutual funds as well as into ETFs. “

Will the Reddit crowd turn into long-term investors?

Those inflows came despite a 30% decline in stock trading volume in April versus March and a similar decline in stock options trading of 14%, according to PiperSandler.

Why are there large inflows into ETF equity funds and less overall trading in stocks and stock options?

Nikolaos Panigirtzoglou, managing director of JPMorgan Chase, suggests that retailers change their trading patterns: “The behavior of US retail investors seems to be changing again, away from buying individual stocks or stock options to buying more traditional equity funds, as has been the case the pandemic, “he wrote in a recent statement to customers.

Whitton agrees, “We’re seeing fixed income ETFs selling and stock ETFs buying. Maybe some of the Reddit crowd has turned into long-term investors. Or they got their tax bills.”

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