Stocks have two big tailwinds pushing them higher

Trader on NYSE May 3, 2021.

Source: NYSE

It’s no longer just about profits: dividends and the heavy buying of exchange-traded funds are helping stocks fuel their powers.

April trading data is in and shows two surprises: a surge in dividends and huge inflows into stocks even stronger than in the first three months of the year.

Dividends are back

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

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

In particular, 10 companies that had suspended dividends in 2020 paid again in April:

Reinstatement of dividends
Ross Stores
HCA healthcare
Universal health services
McMoRan Freeport
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 the payments were suspended.

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

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

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

“There’s money in your pocket,” Silverblatt told me. “Remember, when a company pays a dividend, it is expected to keep that dividend going. It is a company obligation, and you don’t make that decision lightly.”

Investors enthusiastic: The big run for ETFs continues

Almost record-breaking inflows into ESG, thematic technologies and other areas are also propping up prices.

ETFs started the year with just under $ 6 trillion in assets under management, and inflows continued steadily every month through 2021.

According to ETF Trends, investors spent an additional $ 55 billion on stock-based ETFs in April, bringing the total to $ 258 billion year-to-date. There will certainly be much higher equity inflows in 2021 than in 2020, when panicked investors poured money into pension funds.

“The money comes from everywhere,” said Harry Whitton, senior vice president at Old Mission, an ETF market maker. “There are still people at home who are putting money into the markets. They are seeing a lot of interest in [Environmental, Social and Governance] ETFs. You continue to see money flowing out of mutual funds as well as into ETFs. “

Is the Reddit crowd turning into long-term investors?

Those inflows were despite a 30% decline in stock trading volume in April from March and a similar decline in stock options trading of 14%, according to PiperSandler.

Why are there large inflows into ETF stock funds and less overall trading in stocks and stock options?

Nikolaos Panigirtzoglou, managing director of JPMorgan Chase, suggests that retailers change their trading patterns: “The behavior of US retail investors seems to be changing again, away from buying individual stocks or stock options and towards buying more traditional equity funds, as has been the case the pandemic, “he wrote in a recent statement to customers.

Whitton agrees, “We’re seeing fixed income ETFs selling and stock ETFs buying. Maybe some of the Reddit crowd has turned into long-term investors. Or they got their tax bills.”

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