In an environment of market volatility and ongoing trade war discussions, investors are increasingly seeking stability. Dividend stocks are emerging as a practical solution, offering consistent income and potential for growth.
While other assets may fluctuate wildly, dividend stocks deliver steady returns that help shield portfolios during downturns. Reinvesting those payouts can amplify gains over time, striking a balance between caution and ambition.
Their appeal is especially strong right now. But what makes dividend stocks so effective in uncertain times?
What are dividend stocks?
Dividend stocks offer a unique advantage: you earn while you hold. Companies share profits with investors regularly – typically every quarter – through cash payments or additional shares. This approach provides a dual benefit: reliable income and the potential for stock appreciation.
To qualify for the payout, you just need to own the stock before the ex-dividend date (the cut-off date by which you must own shares to qualify for the dividend). Some companies sweeten the deal with special one-time dividends, signalling strong earnings and rewarding loyal investors.
A smart play in uncertain markets
But dividends aren’t all the same. High yields often come with higher risks, while smaller, consistent payouts usually signal stable, well-run companies.
A diversified dividend portfolio can balance income, manage risk and still tap into growth potential – a smart strategy in uncertain times.
Diversifying investments
Successful dividend investing hinges on diversification – spreading investments across sectors, regions and yield categories to manage risk.
High-yield stocks can be tempting but often come with regulatory or financial challenges. Excessively high yields may indicate doubts about a company's ability to maintain payouts, especially if it faces high debt or limited cash flow.
On the other hand, stable, lower-yield stocks in areas like consumer staples or telecoms often provide reliable income backed by predictable revenue. Finding the right mix can enhance returns while minimising risk.
Dividend leaders in the US and Mena to watch
- Domino’s Pizza has consistently raised its dividend for more than a decade. Over the past five years, its earnings per share (EPS) growth averaged about 11.9 per cent annually, supporting robust dividend increases.
- Lowe’s Companies, a dividend aristocrat with more than 50 years of consecutive dividend increases, has accelerated payout growth in recent years. Its 10-year dividend compound annual growth rate (CAGR) is about 11 per cent to 12 per cent, but the past five years have seen above-average increases (for instance, a 5 per cent rise in 2024 to $1.15 per share quarterly). Strong home improvement demand and margin improvements have fuelled this growth.
- MSCI, a provider of financial indexes, has raised dividends for more than 10 years. Analysts note a five-year dividend growth rate averaging 15 per cent to 20 per cent annually, backed by 5.8 per cent projected EPS growth over the next five years.
- Saudi National Bank, the largest bank in the kingdom, has consistently paid dividends, with growth supported by a strong balance sheet and economic expansion. SNB’s dividend per share has grown steadily. Its five-year dividend growth rate is likely to exceed 10 per cent CAGR.
- Etisalat, now rebranded as e&, is a regional telecom giant with operations across 16 countries. It has a strong track record of dividend increases, driven by steady revenue from mobile and data services.
- Emirates NBD, the UAE’s largest bank by assets, has consistently increased its dividends, supported by strong earnings growth from retail and corporate banking. Historically, its dividend per share rose from Dh0.35 in 2018 to Dh0.60 in 2023, reflecting a five-year CAGR of 11 per cent to 12 per cent.
- Emaar Properties, the developer behind projects such as Burj Khalifa, resumed and increased dividends after a pause during the 2008–2010 global financial crisis. From Dh0.15 per share in 2018, it increased to Dh0.25 in 2023, a five-year CAGR of about 10 per cent.
For investors aiming to diversify their dividend income with minimal hassle, exchange-traded funds (ETFs) can also be a practical option. Funds like Vanguard’s Dividend Appreciation ETF (VIG) and Vanguard High Dividend Yield ETF (VYM) offer built-in diversification, making them popular picks.
For those ready to dive into dividend investing, exchanges like the Saudi Exchange (Tadawul) and Dubai Financial Market (DFM) provide access to a wide range of dividend-paying stocks.
The real advantage of dividend stocks? They offer a way to earn while holding, providing both income and growth potential. Whether you're seeking reliable cash flow or positioning for long-term gains, dividend stocks could be the missing piece in your portfolio.
Justin Biebel is director of product implementation and clearing at amana
