The crucial role of dividends in investment portfolios

Dividend investing, often underestimated, has been a significant contributor to investor returns, with reinvested dividends and compounding accounting for about 85% of the S&P 500's total return since 1960. In the face of current market volatility spurred by tariff issues in the US, dividend-focused strategies are gaining traction for their stability and income potential, evidenced by a surge in dividend-focused ETF inflows, reaching an average of US$3.3 billion monthly.

The global economic uncertainty is driving investors towards dividend stocks, which offer more predictable cash flows and less valuation ambiguity compared to growth stocks. This preference is underscored by the defensive nature of dividend strategies, which have shown lower volatility and drawdowns compared to broader markets, particularly during periods of inflation and interest rate concerns.

US-listed dividend ETFs continue to dominate, holding significant market share and attracting substantial new assets, while international developed market dividend ETFs are also seeing increased inflows. Investors are employing various dividend strategies, including rules-based and multifactor approaches, to maximize yield and adapt to market changes.

Looking forward, dividend strategies are expected to maintain their importance in portfolios, especially as valuations in market-cap indexes remain high amid global trade disruptions. Dividend stocks of companies with strong business models and profitability are likely to be favored, providing a compelling alternative to growth stocks in the current investment climate.