Forget earnings: Stocks have two big tailwinds pushing them higher

Traders on the NYSE, May 3, 2021.

Source: NYSE

It’s not just about earnings anymore: Dividends and heavy buying of exchange-traded funds are helping stocks power forward.

April trading data is in, and it shows two surprises: an increase in dividends and huge inflows into equities that are even stronger than the first three months of the year.

Dividends are back

In April 2020, two dozen companies in the S&P 500 reduced or suspended their dividends. More suspensions and dividends came later in the year.

For April 2021, the opposite happened: 33 companies in the S&P 500 announced dividend increases. None announced a decrease, and none suspended dividends.

Most importantly, 10 companies that had suspended dividends in 2020 began paying again in April:

Reinstating dividends
Ross Stores
HCA Health Care
Universal Health Services
Freeport McMoRan
Estee Lauder
Kimco Realty
Darden Restaurants
Marathon Oil

Three of them — TJX, HCA Healthcare and Freeport McMoRan — are paying higher dividends than they were before they suspended payments.

“The bottom line is, a year ago companies had no idea what was going on,” said Howard Silverblatt, senior index analyst from S&P Global Indices. “Now there is much better clarity, and they are willing to put their money where their mouth is.”

Will it continue? Silverblatt estimates that the overall dividend payout for the S&P 500 will increase 5% in 2021.

That would mean a payout to investors of about $515 billion, up from $483 billion in 2020.

“That is money in your pocket,” Silverblatt said told me. “Remember, when a company pays a dividend, it is expected that it will keep that dividend going. That is a commitment from the company, and they don’t make that decision lightly.”

Investors enthusiastic: Big rush to ETFs continues

Near-record inflows into ESG, thematic tech and other areas are also supporting prices.

ETFs started the year just short of $6 trillion in assets under management, and inflows have continued on a consistent basis every month in 2021.

According to ETF Trends, investors spent an extra $55 billion on equity-based ETFs in April, for a year-to-date total of $258 billion. 2021 will certainly see much higher equity inflows than 2020, when panicked investors threw money into bond funds.

“The money’s coming from everywhere,” said Harry Whitton, senior vice president at Old Mission, an ETF market maker. “There are people still sitting at home who are putting money into the markets. You are seeing huge interest in [Environmental, Social and Governance] ETFs. You are continuing to see money come out of mutual funds and into ETFs as well.”

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