Hedge Funds Aren’t Buying Dividend Stocks

It seems that the appeal of dividend income has been waning on smart money investors, including hedge fund managers. In a total return framework, investors should view returns from price appreciation the same as returns from dividend income. However, when expectations for stock price movements change, so does the popularity of dividend income. That is, if investors expect big price increases in the stock market, they will be less likely to buy dividend-yielding names in favor of more growth-oriented ones.

We decided to take a look at the current popularity of S&P 500 dividend stocks among the smart money, by comparing the number of those stocks seeing significant net purchases from institutional investors to those seeing significant net sales. The numbers were pretty decisive. Out of the roughly 130 dividend stocks of the S&P 500 with dividend yields above 2% and sustainable payout ratios below 50%, only 2 saw significant net institutional purchases over the current quarter whereas 14 saw significant net institutional sales. This could indicate a general aversion to dividend stocks from smart money investors.

Source: Kapitall

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