ETFdb Logo
  • ETF Database
  • Channels
    • Themes
      • Active ETF
      • Alternatives Channel
      • Artificial Intelligence
      • China Insights
      • Climate Insights
      • Core Strategies
      • Crypto
      • Disruptive Technology
      • Energy Infrastructure
      • ETF Building Blocks
      • ETF Education
      • ETF Investing
      • ETF Strategist
      • Faith-Based Investing
      • Financial Literacy
      • Fixed Income
      • Free Cash Flow
      • Innovative ETFs
      • Invest Beyond Cash
      • Leveraged & Inverse
      • Modern Alpha
      • Portfolio Strategies
      • Tax Efficient Income
    • Asset Class
      • Equity
        • U.S. Equity
        • Int'l Developed
        • Emerging Market Equities
      • Alternatives
        • Gold/Silver/Critical Materials
        • Crypytocurrency
        • Currency
        • Volatility
      • Fixed Income
        • Investment Grade Corporates
        • US Treasuries & TIPS
        • High Yield Corporates
        • Int'l Fixed Income
    • ETF Ecosystem
    • ETFs in Canada
    • Market Outlook
    • Crypto ETF Hub
  • Tools
    • ETF Screener
    • ETF Country Exposure Tool
    • ETF Database Categories
    • Indexes
    • Scenario Analysis
    • Watchlists
    • Head-To-Head ETF Comparison Tool
    • Mutual Fund To ETF Converter
    • ETF Stock Exposure Tool
    • ETF Issuer Fund Flows
  • Research
    • ETF Education
    • Equity Investing
    • Dividend ETFs
    • Leveraged ETFs
    • Inverse ETFs
    • Index Education
    • Index Insights
    • Top ETF Sectors
    • Top ETF Issuers
    • Top ETF Industries
  • Webcasts
  • Themes
    • AI ETFs
    • Blockchain ETFs
    • See all Thematic Investing ETF themes
    • ESG Investing
    • Marijuana ETFs
  • Multimedia
    • ETF 360 Video Series
    • ETF of the Week Podcast
    • Gaining Perspective Podcast
    • ETF Prime Podcast
    • Video
  • Company
    • About VettaFi
    • Get VettaFi’ed
  • PRO
    • Pro Content
    • Pro Tools
    • Advanced
    • FAQ
    • Pricing
    • Free Sign Up
    • Login
  1. ETF Strategist Channel
  2. P.A.T.T.Y. in 2023: The Search for Yield in a Tech-Dominated Stock Market
ETF Strategist Channel
Share

P.A.T.T.Y. in 2023: The Search for Yield in a Tech-Dominated Stock Market

RiverFront Investment Group   Jul 07, 2023
2023-07-07

SUMMARY

  • The tech sector has outperformed the S&P 500 year to date in 2023.
  • We do not see a return to growth-stock-only purchase strategies.
  • We believe the tech sector should be incorporated into income-seeking strategies.

Back in May 2022, we wrote a Weekly View entitled “Move Over TINA…Here Comes PATTY”, where we introduced our new acronym for the post-low interest rate world: P.A.T.T.Y. It stands for ‘Pay Attention To The Yield’– and it was another way to say that we believed stable income generation was likely to be one of investors’ best weapons against a highly volatile stock and bond market driven by tightening monetary policy, economic uncertainty, and rising interest rates.

Since we wrote this, the US has certainly been through a lot of monetary tightening, uncertainty, and rising rates. Since May 2022 the Fed has raised rates by 4.25 percentage points, undertaking one of its most aggressive hiking cycles in history. We’ve also lived through a slowing of the US manufacturing economy, a deepening of the US/China ‘Cold War’, a mini-banking crisis in March, and a narrowly averted debt ceiling crisis.

P.A.T.T.Y. in 2023

Source: Refinitiv Datastream, RiverFront. Data monthly as of June 30, 2023. Chart shown for illustrative purposes. An investment cannot be made directly in an index.

Although Tech underperformed the S&P 500 in 2022, since January, the Technology sector has been the highest performing sector in the S&P 500 as shown in the chart above. Does the recent resurgence of tech mean our PATTY acronym gets relegated to the rubbish bin of misfit investment ideas? We don’t think so. Actually, Technology and growth-oriented companies in general can play an important role in a PATTY strategy, in our view.

We think that some stable, high cashflow technology companies are an appropriate place to seek dividend growth. While dividends are not guaranteed and are subject to change or elimination, some of the largest mega-cap tech companies have been paying and growing dividends in the last five to ten years…a testament to the stable, recurring cash flow generation that we think is typical of the software and tech services business model.

Using the MSCI US Information Technology Index as a proxy for large-cap technology, we have found stable large-cap tech companies to be dividend growers, having averaged approximately 6.8% annual dividend growth over the past 5 years. While the overall yield of the index is relatively low, we think long-term investors should pay as much or more attention to dividend growth ability as in absolute yield. The ability to consistently grow dividend payments over time is potentially a more powerful income generator than simply paying a higher dividend today, in our opinion. In fact, we believe ‘high dividend yield, low dividend growth’ companies tend to be dividend cutters when times get tough.

Looking at the top ten largest constituents of the US Information Technology index based on market cap reveals an even stronger story: Of the eight companies that pay dividends, 5-year dividend growth has averaged approximately 13% (see table below – data from MSCI and Factset; holdings as of 5/31/23, data as of 6/16/23).


Content continues below advertisement

P.A.T.T.Y. in 2023

Source: Factset Data Systems as of June 16, 2023. Table above is shown for illustrative purposes only. References to individual securities above are not intended as an investment recommendation. Past performance is no guarantee of future results. Dividends are not guaranteed and subject to change or elimination. See below for important disclosures at the end of this publication.

Conclusion: Finding PATTY Plays Across the Stock and Fixed Income Spectrum

In conclusion, a ‘PATTY’ stock strategy isn’t one that just relies on finding the highest-yielding stocks. To the contrary, a sensible PATTY strategy in our opinion also relies on owning stocks with the ability to grow dividends over time in a sustainable way. From this perspective, certain technology-related companies that have shown a history of funding and growing dividends via cash flow generation have a place in a yield-oriented portfolio, in our opinion.

A PATTY strategy is about delivering income as well as share price growth. It is a long-term strategy, and as such it requires patience. We expect continued heightened volatility in financial markets and believe regular income payments whether reinvested or withdrawn can help investors navigate this volatility.

For more news, information, and analysis, visit the ETF Strategist Channel.

Risk Discussion: All investments in securities, including the strategies discussed above, include a risk of loss of principal (invested amount) and any profits that have not been realized. Markets fluctuate substantially over time, and have experienced increased volatility in recent years due to global and domestic economic events. Performance of any investment is not guaranteed. The value of stocks of technology companies and companies that rely heavily on technology is particularly vulnerable to rapid changes in technology product cycles, rapid product obsolescence, government regulation and competition, both domestically and internationally, including competition from foreign competitors with lower production costs. Stocks of technology companies and companies that rely heavily on technology, especially those of smaller, less-seasoned companies, tend to be more volatile than the overall market. Technology companies are heavily dependent on patent and intellectual property rights, the loss or impairment of which may adversely affect profitability. Additionally, companies in the technology sector may face dramatic and often unpredictable changes in growth rates and competition for the services of qualified personnel. Please see the end of this publication for more disclosures.

Loading Articles...
Our Sites
  • VettaFi
  • Advisor Perspectives
  • ETF Trends
Tools
  • ETF Screener
  • Mutual Fund to ETF Converter
  • Head-To-Head ETF Comparison
  • ETF Country Exposure Tool
  • ETF Stock Exposure Tool
  • ETF Database Pro
More Tools
  • Financial Advisor & RIA Center
Explore ETFs
  • ETF News
  • ETF Category Reports
  • Premium Articles
  • Alphabetical Listing of ETFs
  • Browse ETFs by ETF Database Category
  • Browse ETFs by Index
  • Browse ETFs by Issuer
  • Compare ETFs
Information
  • Contact Us
  • Terms of Use and Privacy Policy
  • © 2025 VettaFi LLC. All rights reserved.

Advertisement

Is Your Portfolio Positioned With Enough Global Exposure?

ETF Education Channel

How to Allocate Commodities in Portfolios

Tom LydonApr 26, 2022
2022-04-26

A long-running debate in asset allocation circles is how much of a portfolio an investor should...

Core Strategies Channel

Why ETFs Experience Limit Up/Down Protections

Karrie GordonMay 13, 2022
2022-05-13

In a digital age where information moves in milliseconds and millions of participants can transact...

}
X