Strong dividend growth should continue to propel the S&P 500 index higher, and it could reach 3,000 before 2020, says Dominic Rossi chief investment officer for equities at Fidelity Worldwide Investment.
Dividend-per-share growth in the 12 months through the third quarter registered 11.3 percent. So "it is little wonder the U.S. equity market has been one of the most rewarding asset classes in recent years,"
Rossi writes in the Financial Times.
"Is this set to continue? We think so. We can find no other asset class that offers this level of income growth in dollar terms. Emerging markets offer little dividend growth in US dollar terms. Currency headwinds and falling returns on equity are the obstacles," he explains.
"Dividend-per-share growth for the S&P 500 is likely to stay at double-digit levels."
The fact that S&P 500 dividends are highly diversified by sector is supportive, Rossi says.
More than 400 stocks in the index pay a dividend.
Based on Fidelity's dividend estimates, if you assume the S&P 500 dividend yield stays on its 10-year median of 2 percent, the S&P 500 could reach 2,400 by 2016, and "3,000 is within reach before the decade is out," Rossi predicts.
For the short term, investors appear to lack a strong conviction. "It seems like there's an inordinate amount of uncertainty in the world," Michael Fredericks, manager of the BlackRock Multi-Asset Income Fund, tells
The Wall Street Journal. "It's hard to have a lot of conviction."
Jonathan Corpina, senior managing partner at Meridian Equity Partners, sees it much the same way. "Volatility is very well entrenched in this market," tells
The Journal. "It shows how uncommitted investors are. . . . The investment horizon has gotten short."