Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / Why the Bull Market Is a Dividend Revival Story
Transcript
- Lucas: So I keep coming back to this one number: the S&P 500 is sitting at 7,674, up maybe a fraction over the last five days, and yet the real GDP growth number just printed at one point five percent annualised. That's down from two point one. We're in a bull market that's climbing a wall of worry, and the weirdest part is where the money is flowing. Luna: Where's it flowing? Because the index is basically flat this week, but I saw the Russell 2000 is down over two percent. Small caps are getting hit. Lucas: Right, and that's part of it. But the thing that caught my eye is a quieter shift: dividends. Not the flashy growth names, not the AI trades. I'm talking about the companies that just mail you a check every quarter. And this bull market is quietly becoming a dividend revival story. Luna: That feels almost retro. Aren't dividends the boring cousin of capital gains? I mean, we've been in a growth market for so long, dividends seemed like something your grandfather cared about. Lucas: Totally, and that's exactly the misconception. Look, when the Fed holds rates at three point six three percent — which is where they've been since July — and real GDP is only growing at one point five percent, the math shifts. Capital gains get harder to come by, and suddenly that quarterly payout becomes a much bigger slice of your total return. Lucas: Historically, dividends have accounted for about forty percent of the S&P 500's total return over the long run. But in a slow-growth environment like this, that number can climb higher. And right now, we're seeing companies with decades of dividend increases outperform the broader market. Luna: So give me a concrete example. Who's actually doing this well? Because I can't just think of 'the dividend stocks' as a vague blob. Lucas: Sure. Take a company like Procter and Gamble — one of the classic dividend aristocrats, companies that have raised their payout for at least twenty-five consecutive years. P and G has done it for over sixty years. In a market where the ten-year Treasury yields around four percent, P and G's yield is maybe two and a half, but they're growing that dividend at five to six percent a year. That compounding is the real story. Luna: Okay, so it's not just the yield, it's the growth. But I've heard people argue that dividends are a signal of a company running out of growth ideas. Like, if you can't reinvest your cash, you just give it back. Lucas: That's the old way of thinking, and it's changing. And here's the twist: the tech giants that used to avoid dividends are now initiating them. Alphabet, Meta, even Salesforce — they've all started paying dividends in the last couple of years. That's a structural shift. Lucas: It's not that they've run out of ideas. It's that they're generating so much cash that returning some of it to shareholders is the rational thing to do. And when you see that, it signals maturity — the market is getting more balanced. Luna: So we're seeing a bull market that's actually rewarding income. That's a change from the last decade where it was all about buybacks and growth at any cost. Lucas: Exactly. And the data backs that up. If you look at the iShares Russell 1000 Growth ETF, it's up about point four percent over the last five days. The Vanguard Growth ETF is up point seven. But the broader market is flat, and value and income names are holding up better than the small-cap Russell. That's the rotation. Luna: Right, because the Russell 2000 is down two percent in the same week. So the growth trade is softening at the edges, and dividend payers are acting as a defensive anchor. Lucas: Precisely. And when you look at the dividend aristocrats, they tend to have lower beta — they don't swing as wildly with the market. In a year like this, where the S&P has had those double-digit moves but also some scary pullbacks, having that stability matters. Luna: I want to talk about the psychology of this, because I think there's something almost behavioral happening. When you receive a dividend check, it feels different than seeing your portfolio value go up. It's tangible. Lucas: That's a great point. There's a whole body of research on the 'dividend premium' — investors are willing to pay more for a stock that pays a dividend because it feels like a guarantee. It taps into loss aversion. You don't lose the dividend, even if the stock price dips. Luna: And in a world where rates are sticky around three point six, that income is competitive with bonds. But with a growth kicker on top. Lucas: Right. And that's why I think this revival has legs. It's not just a defensive play; it's a rational response to the macro environment. With real GDP growth at one point five percent, companies can't grow earnings at twenty percent anymore. So they return cash. Lucas: And when you have a company like Johnson and Johnson, which has increased its dividend for over sixty years, you're getting a bond-like income stream but with equity upside. That's a powerful combination. Luna: So for the listener who's been all-in on growth, what's the takeaway? Should they be shifting some money into dividend payers? Lucas: I wouldn't say dump your growth stocks, but it's worth looking at your portfolio's income component. If you're yielding less than two percent overall, you might be under-allocated. Even a shift of ten percent into a dividend-focused ETF can smooth out your ride. Luna: And that's the kind of practical advice that's genuinely useful. If someone is listening and thinking, 'I want to understand my portfolio better,' that's a win. Lucas: And if today was actually useful to you, the way these episodes stay ad-free is listener support. If you feel like you got something from our conversations, you can buy me a coffee at buy me a coffee dot com slash fexingo. It's a small way to keep this going. Luna: Yeah, and it genuinely helps us keep the lights on. We appreciate anyone who does that. Lucas: But back to dividends — I want to make one thing clear. Not all dividends are created equal. You have to watch the payout ratio. If a company is paying out more than it earns, that's a red flag. Luna: Right, because a high yield can be a trap. A stock might drop, pushing the yield up artificially, but the company might cut the dividend. Lucas: Exactly. That's why I focus on the dividend aristocrats and the companies with a long track record of increases. They tend to have conservative payout ratios and strong balance sheets. It's not just about the yield; it's about the sustainability. Lucas: And that's something that gets overlooked in a bull market. But as the market matures and growth slows, that durability becomes the most valuable thing. Luna: So this isn't just a flash in the pan. This could be a multi-year theme. Lucas: I think so. We're seeing the demographic shift too — the baby boomers retiring are moving into income generation. That's a structural demand for dividends that isn't going away. Luna: And with the Fed on hold, that income is still competitive. It's a nice setup. Lucas: The bottom line is, dividends are back in vogue, and they're not just for your grandfather's portfolio. They're a rational, data-driven way to play a slower-growth bull market. And that's a story I think we'll be talking about for the rest of the year.