Dividend growth for U.S. companies will matter more than earnings increases in this year's unique global investing environment, so investors should buy shares of companies increasing their payouts, according to a Jefferies report Monday.
"A scarcity of 'dividend growth' globally, combined with flattening G7 yield curves, has put a bid on 'U.S. dividend growth stocks,' in our view," Sean Darby, chief global equity strategist, wrote in the note to clients. "U.S. real bond yields have also fallen since November 2015, underwriting income generating stocks."
Dividend-per-share growth for the S&P 500 should number 4.2 percent this year, down from last year's 10.6 percent growth but far better than expectations for zero-to-tiny earnings growth, according to Jefferies.
The firm notes that a June interest rate increase by the Federal Reserve or a jump in defaults by corporate borrowers could put the rally in dividend payers at risk, but that's not something to worry about yet.
Jefferies recommends stocks with "high cash, but low gearing and good dividend cover."