Dividends, Growth stocks, Japan, and the ECB

By: Stephen Way and Mark Weinberg • March 8, 2024

Dividends offer a compelling investment opportunity in 2024

We believe dividends may provide a compelling investment opportunity for investors this year for several key factors that underscore their appeal.

History suggests that Growth stocks may be challenged this year

Last year, Growth stocks significantly outperformed Value stocks by a wide margin. The Russell 1000 Growth Index returned 42.7%, leaving the Russell 1000 Value Index's 11.4% return in the dust—an enormous difference of 31.3%. This surge was powered by the stellar performance of the "Magnificent 7" — Apple, Alphabet, Tesla, Microsoft, NVIDIA, Amazon, and Meta Platforms — who together drove nearly two-thirds of last year’s performance, in the S&P 500 Index, which returned 26.3%.

We continue to favour Japan

On February 22, 2024, Japan's Nikkei-225 Index reached and surpassed a historical peak, marking its highest point since December 29, 1989. This significant achievement reflects Japan's growing attractiveness to global investors, seeking opportunities for diversification, capital growth, and increasingly competitive dividend yields. Japanese equities have demonstrated remarkable resilience in achieving this milestone even as the nation grapples with a technical recession characterized by two consecutive quarters of negative GDP growth. Despite the significant differential between economic growth in Japan and the U.S. and the solid absolute performance of U.S. equities last year, Japanese equities outperformed U.S. equities (in local currency terms). Japan has continued outperforming most major global equity markets this year, prompting some investors to ponder the sustainability of such outperformance.

Weaker growth and inflation in Europe than in the U.S. – Will the ECB cut policy rates before the Fed?

A thought-provoking narrative has emerged, centred around the European Central Bank (ECB) and its potential move to preempt the Federal Reserve in cutting policy rates. As the U.S. economy continues to pleasantly surprise to the upside, Europe is beating to a different rhythm, characterized by stagnation and disinflationary pressures. This contrasting scenario has sparked a narrative among investors of the possibility of the ECB cutting policy rates before the U.S. Fed.

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 Publication date: March 7, 2024.