From Morningstar:

Morningstar’s report on dividends highlights the impact of the dividend environment on fund strategies. Investors have shown a preference for globally focused dividend strategies, with record inflows of €19.9 billion in European-domiciled globally investing dividend strategies in 2022. Over 90% of assets in the global equity income Morningstar category are held within actively managed funds, which have been successful in adding value versus passive counterparts.

Actively managed dividend strategies have excelled in three key areas: blended approach to dividend investing, forward-looking fundamental analysis, and flexibility in handling dividend cuts. This approach has allowed them to build a balanced portfolio of complementary dividend stocks, avoid unsustainable high-yield stocks, and be more lenient with companies that had to cut dividends during the pandemic.

Passive global equity income funds have trailed their active peers over the last 10 years, largely due to their emphasis on value and small caps, which has not aligned with the market’s favoring of growth and larger companies. However, passive funds are diversifying their approach by combining yield with other factors like dividend growth and quality to create more balanced portfolios and incorporating forecasting yields into their strategies.

When choosing a dividend strategy, investors should consider the different approaches offered by both active and passive funds. Understanding the investment principles and examining the portfolios to see the exposure to value, growth, or quality orientation is important. Additionally, passive investors should be prepared for potential volatility.

For more on dividend investing and fund research, visit Morningstar’s international editorial websites for additional resources and information.



Read more: Active vs Passive: Who’s Winning on Dividends?