The Importance of Quality Dividends


Even when you look broadly at the stock market as a whole, dividends have been a key component of long-term success for investors. For instance, as depicted in the chart below, the reinvested dividends over the past 25 years has produced a cumulative return significantly higher than not reinvesting the dividends.

Impact of dividends on total return

How the CARES Act May Impact Your Dividend Portfolio

In March 2020, the US Government passed the CARES Act which impacts the companies that have accepted relief payments. Businesses that borrow money under the CARES Act cannot buy back company stock (unless required pursuant to a pre-existing contract), pay dividends, or make other capital distributions. Additionally, until September 30, 2020, borrowers must maintain their employment level as of March 24, 2020, to the extent practicable, and may not reduce their workforce by more than 10 percent from the March 24th level. Last, this restriction will impact those companies for 12 months after the date the loan or guarantee is no longer outstanding.

The Rise of Fallen Angels in Bond Market

To guess which companies and how many companies will be slashing their future dividends, the evolving US corporate bond market is a good place to start. As pictured below, there has been a rapid increase in the number of “fallen angels,” BBB corporate bonds that have fallen from investment grade into high yield because of deteriorating financial conditions.

US fallen angels
“Madison” and/or “Madison Investments” is the unifying tradename of Madison Investment Holdings, Inc., Madison Asset Management, LLC (“MAM”), and Madison Investment Advisors, LLC (“MIA”), which also includes the Madison Scottsdale office. MAM and MIA are registered as an investment adviser with the U.S. Securities and Exchange Commission. Madison Funds are distributed by MFD Distributor, LLC. MFD Distributor, LLC is registered with the U.S. Securities and Exchange Commission as a broker-dealer, and is a member firm of the Financial Industry Regulatory Authority. The home office for each firm listed above is 550 Science Drive, Madison, WI 53711. Madison's toll-free number is 800-767-0300. | Any performance data shown represents past performance. Past performance is no guarantee of future results. | Non-deposit investment products are not federally insured, involve investment risk, may lose value and are not obligations of, or guaranteed by, any financial institution. Investment returns and principal value will fluctuate. | This website is intended to be for informational purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security.
Consider the investment objectives, risks, and charges and expenses of Madison Funds carefully before investing. Each fund’s prospectus contains this and other information about the fund. Call 800.877.6089 or visit madisonfunds.com to obtain a prospectus and read it carefully before investing.
Beta: a measure of the fund’s sensitivity to market movements. A portfolio with a beta greater than 1 is more volatile than the market, and a portfolio with a beta less than 1 is less volatile than the market.
Standard Deviation: a statistical measurement of dispersion about an average, which, for a portfolio, depicts how widely the returns varied over a certain period of time. Investors may use the standard deviation of historical performance to understand the range of returns for a portfolio. When a portfolio has a higher standard deviation than its benchmark, it implies higher relative volatility. Standard deviation has been calculated using the trailing monthly total returns for the appropriate time period. The standard deviation values are annualized.
Dividend Yield: the portfolio’s weighted average of the underlying fund holdings (as of 3/31/2020) and not the yield of the fund.
Non-deposit investment products are not federally insured, involve investment risk, may lose value and are not obligations of, or guaranteed by, any financial institution. Investment returns and principal value will fluctuate.
An investment in the fund is subject to risk and there can be no assurance the fund will achieve its investment objective. The risks associated with an investment in the fund can increase during times of significant market volatility. The principal risks of investing in the fund include: equity risk, growth and value investing risk, special risks associated with dividend paying stocks, option risk, interest rate risk, capital gain realization risks to taxpaying shareholders, and foreign security and emerging market risk.
Performance data presented for Madison mutual funds are for the for the Class Y share class only; other classes may have different expenses and performance characteristics.
More detailed information regarding these risks can be found in the fund’s prospectus.
Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only, and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would lower performance.
The S&P 500® is an unmanaged index of large companies and is widely regarded as a standard for measuring large-cap and mid-cap U.S. stock-market performance. Results assume the reinvestment of all capital gain and dividend distributions. An investment cannot be made directly into an index.
RUSSELL 1000® VALUE: Russell 1000® Value Index is designed to track those securities within the broader Russell 1000 Index that FTSE Russell has determined exhibit value characteristics.
Russell Investment Group is the source and owner of the trademarks, service marks and copyrights related to the Russell Indexes. Russell® is a trademark of Russell Investment Group.
The Lipper Equity Income Funds Index tracks the performance of funds that, by prospectus language and portfolio practice, seek relatively high current income and growth of income by investing at least 65% of their portfolio weight in dividend-paying equity securities. The Index is composed of the 30 largest funds by asset size in the Lipper investment objective category.