Could the dividend aristocrats be the answer to your search for income?

By Lee Burnham, associate director, Canaccord Genuity Wealth Management Jersey

IN our recent series of articles we’ve been looking at where savers might find better returns than those offered by cash savings. Last month we looked at ‘alternative’ investments. But what else should be included as part of a diversified investment portfolio?

With stock markets ending 2016 on a record high, it would seem remiss not to discuss equities. US equities, in particular, rallied strongly following Donald Trump’s election victory – with the Dow Jones Industrial Average Index gaining 8% in the five weeks that followed. It’s the biggest rally following a US presidential election in history.

The question is, after such strong gains, is it too late, or more importantly too risky, to get in on the action?

Getting the right exposure

If history is any guide, the recent rally in the Dow Jones Industrial Average ought to continue.

On previous occasions – where the index has jumped at least 5% in a five-week period following an election – the index continued to rally for four or five years, gaining another 10% on average.

But with political uncertainties and potential risks of higher inflation in 2017 will this stand true?

Even if it doesn’t, the real jewel in the crown of the US stock market is the fact it contains the largest number of companies that have increased their dividend every year for the last 25 years – the ‘dividend aristocrats’.

These companies typically have sustainable competitive advantages and exhibit higher earnings growth, enabling them to stand out among their peers in the broader market.

Regardless of who has been president in the US, the qualities of these companies have endured. Historically, they have even outperformed in down markets, such as during the financial crisis.

So, there is opportunity in equity markets yet, but the key is in finding the right exposure through a well-constructed and diversified investment portfolio.

If you’d like to find out more about investing and seeking higher returns than those offered on cash savings please get in touch with us on 01534 708090.