Citi Global Wealth PUTTiNG YoUr CASH To worK iN A HiGHer rATe eNviroNMeNT | | 41 Investments FiGUre 2: THe CriTiCAL iMPorTANCe oF DiviDeNDS AND reiNveSTeD DiviDeNDS conditions may arrive at some point in 2023, so we cannot simply extrapolate dividend grower 4500 equities’ 2022 performance throughout 2023. 4000 True, we may see dividend grower “tortoises” S&P 500 total return continue to exhibit lower volatility and stronger 3500 performance for a time, particularly if a global recession takes hold next year. Thereafter, 3000 though, the most beaten-down parts of the 0 equity markets – including firms with less of 0 2500 a track record of dividend payments – could 1 = rally hard as investors anticipate an eventual 2000 8 corporate profits recovery. The hare may be 8 9 1 1500 poised for a comeback, in other words. 1000 500 wHAT To Do Now? S&P 500 price return At some point in 2023, we envisage early- 0 cycle dynamics taking hold. If so, high- '88 '90 '92 '94 '96 '98 '00 '02 '04 '06 '08 '10 '12 '14 '16 '18 '20 '22 quality dividend growers may rally but less so than racier “hare” equities with high- growth characteristics, which have greater Source: Bloomberg, as of 24 Nov 2022. All forecasts are expressions of opinion, are subject to change without notice and are not intended to be rebound potential given the extent of their a guarantee of future events. Indices are unmanaged. An investor cannot invest directly in an index. They are shown for illustrative purposes only selloff. We will likely shift our tactical asset and do not represent the performance of any specific investment. Index returns do not include any expenses, fees or sales charges, which would allocation in favor of such shares once lower performance. Past performance is no guarantee of future results. Real results may vary. we think conditions are right. Throughout Chart shows the performance of the S&P 500 Index since 1988 on a price and total return basis. the economic cycle, however, we believe clients seeking both portfolio income and A quality investment approach also focuses on The hare might surge principal growth should seek to maintain firm profitability, leverage and rate sensitivity, strategic allocations to quality dividend especially as higher interest rates will make ahead in 2023 payers throughout the economic cycle. debt costs more onerous in the years ahead. As always, qualitative factors like strong We have high conviction in dividend growers as corporate governance and quality management a core allocation. However, the one environment teams are additional considerations that are where this category tends to underperform is hard to quantify but often align with long-term immediately before and in the early stages of dividend sustainability. a new economic cycle. There is risk that such