SINGAPORE - In a year ravaged by fears about a Greek default, a hard landing in China and a US recession, high-dividend stocks beat their racier high-growth counterparts in total returns as they assured investors that their strong cash flows could continue.
In Singapore, investors putting their money in the top 20 stocks with the highest indicative dividend yields at the end of last year would have enjoyed total average returns of 30.5 per cent, according to data compiled by the Singapore Exchange as requested by The Business Times.
In contrast, those putting their money in the top 20 stocks by historical beta - fast-growing stocks with the highest volatility relative to the Straits Times Index - recorded a total average return of 15.2 per cent.
Meanwhile, a study by Credit Suisse for the first nine months of the year for large-cap stocks with a market capitalisation of more than $1 billion found that dividend stocks outperformed growth stocks by 10 per cent. However, over a longer period - from January 2010 to September 2012 - growth stocks outperformed dividend stocks by 12 per cent.
Dividend stocks did well this year because negative real interest rates forced investors to seek comfort in the income they pay, said Kelvin Tay, regional chief investment officer of UBS Wealth Management.
"High beta stocks thrive in an environment where there is strong growth in the economy. Singapore currently has a situation that is akin to a mini stagflation," he said.
The beta of an asset is a measure of its volatility as compared to a benchmark. A beta of one means price movements are perfectly correlated with the STI.