We recently analyzed the best dividend stocks of 2024.
Vistra Corp. (NYSE:VST) is the only energy company on our list of the 10 Best Dividend Stocks of 2024. The stock ranked #1 by a clear margin.
We are nearly halfway through the year, and the stock market is showing consistent signs of improvement. The broader market index has surged by 12.2% this year so far, with its 12-month return coming in at nearly 27%, as of the close of May 21. However, dividend stocks are still not keeping up with the broader market, with the S&P 500 Dividend Aristocrats Index returning just 3.85% since the start of 2024. Last year also didn’t go well for these equities as tech stocks rose to fame. That said, the tech stocks that drove the market rally, have decided to enhance their shareholder return by initiating dividend policies this year. This could have an impact on the performance of dividend stocks and the overall market. David Harrell, an editor of the Morningstar Dividend Investor newsletter, made the following comment in this regard:
“The inclusion of the big names [Meta, Alphabet] in any sort of dividend indexes or dividend growth indexes is very likely to increase their correlation with the broad market.”
While dividend stocks lagged behind the market last year, their long-term performance suggests otherwise. Dividend equities represented an average of 34% of the market’s overall return from 1940 to 2023. Not only this, these stocks showed resilience and demonstrated strong performance in comparison to other asset classes during periods of high inflation. In our article titled 25 Things Every Dividend Investor Should Know, we cited data from Hartford Funds and mentioned that during eight inflationary periods between 1970 and 2022, dividend stocks outperformed their non-dividend counterparts. Specifically during the 1970s, a decade marked by high inflation, dividends accounted for nearly 73% of the S&P 500’s total return.
In addition to this, the dividend growth rate has also surpassed inflation over the years. According to data from Yale University’s Robert Shiller, dividends per share have grown 1.6 percentage points faster annually than inflation since 1871. This growth advantage has increased in recent decades as over the past 50 years, dividends have surpassed inflation by 2.5 percentage points annually, and in the last two decades, by 4.6 annualized percentage points. This ability of dividends to outpace inflation makes them a more attractive investment for long-term investors. Therefore, analysts suggest that investors should not be concerned about dividend stocks underperforming the broader market in the short term.
Another factor attracting investors to dividend stocks is the increasing amount of dividends US companies have paid over the years. According to recent data from S&P Dow Jones Indices, the S&P 500 companies paid $151.6 billion in dividends in the first quarter of 2024, up from $146.8 billion during the same period last year. The report also mentioned that 796 companies announced dividend hikes during the quarter, amounting to $22.7 billion, growing from $19.7 billion in the prior-year period. This indicates that dividend payments are on the right track this year. Analysts have also given a positive outlook for dividend stocks in 2024.
Also read: 20 Cities With the Highest Electricity Rates in the US
Wind turbines against a backdrop of the sky, signifying the power of renewable energy.
Vistra Corp. (NYSE:VST)
Year-to-Date Returns as of May 20: 147.12%
Vistra Corp. (NYSE:VST) tops our list of the best dividend stocks of 2024, returning over 147% to shareholders since the start of the year. On May 3, the company hiked its quarterly dividend by 1.2% to $0.2175 per share. It has raised its payouts every quarter since 2022. As of May 21, the stock has a dividend yield of 1.13%.
Insider Monkey’s database of Q4 2023 indicated that 56 hedge funds owned stakes in Vistra Corp. (NYSE:VST), worth over $1.3 billion collectively.
Third Point Management mentioned Vistra Corp. (NYSE:VST) in its Q4 2023 investor letter. Here is what the firm has to say:
“Vistra Corp. (NYSE:VST) is one of the largest independent power producers (“IPPs”) and retail electricity providers in the country. In 2023, Vistra’s natural gas, nuclear and coal plants generated over 20% of electricity consumed in Texas.
Unlike regulated utilities, where profits are determined by capital invested, Vistra operates in deregulated markets (primarily ERCOT and PJM), where they generate and sell electricity at market prices. Historically, Vistra has been valued at a steep discount to both the regulated utility sector and the broader market in part due to the challenging fundamentals of merchant power. Stagnant domestic electricity demand combined with an oversupply of natural gas has made US electricity prices among the lowest in the world. Meanwhile, significant growth in subsidized renewable generation has created major intraday price volatility in Vistra’s core markets, with power prices sometimes going negative during periods of abundant sunshine or wind. Bankruptcies, including Vistra’s former parent company TXU in 2014, have become commonplace in the sector over the last decade…” (Click here to read the full text)
Vistra Corp. (NYSE:VST) is number one on our list of the best dividend stocks. Click to see the other 9 Best Dividend Stocks of 2024.
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Disclosure: None. This article is originally published at Insider Monkey.