After years of brisk dividend growth, investors want more of the same. But while ClearBridge co-CIO Hersh Cohen cautions that it may now be normalizing, payouts should remain attractive.
Dividends have been a welcome source of income for investors during the prolonged period of low rates since the financial crisis. Yet for ClearBridge co-CIO Hersh Cohen, they’re also potential signs of strong fundamentals that speak to the long-term prospects for a stock.
The key is to be discriminating, favoring companies with a history of consistent dividend increases driven by the underlying business while taking a disciplined view of valuation. Consumer staples, for example, may be among the most consistent dividend growers, but Hersh favors those “where demand for the product doesn’t have to be reinvented every quarter.”
While he doesn’t see the market now hitting a top, he is concerned about over-optimism based on potential tax cuts still to be enacted. But for him, “the main thing is patience – you don’t make money jumping in and out of dividend stocks.”