Equity Capabilities

U.S., international and global strategies seeking long-term growth.

We offer actively managed U.S., international and global equity strategies that include top-down and bottom-up approaches for a full range of market capitalizations and investment styles. Our equity approach is centered on pursuing risk-adjusted long-term performance to help institutions meet their objectives.

Equities Insights

Not Your Parents' Dividends

1.  56 companies in the S&P 500 have already announced dividend increases in 2024, by a median of 6%.1
2.  For decades, large, global-branded companies were among the headline performers for dividend-paying companies.
3.  A new wave of companies has begun distributing dividends and rewarding shareholders. We think it's about time.

Earlier this month, when a social media giant announced its first-ever dividend, I couldn't contain my excitement. Not since 12 years ago has a fast-growing technology company, firing on all cylinders, shocked the investment community with the initiation of a dividend! Historically, this was viewed as a sign of business maturation and, presumably, the beginning of a slower growth phase. Not this time! Shareholders embraced the news, sending the stock soaring up 20% on February 1 — the day the company announced it will pay a 50-cent dividend to shareholders at the end of March.

To be clear, while much of the Magnificent 7's investment returns have been market beating, I believe the real excitement lies in what may come. In my view, this dividend announcement may lead to a potential wave of big tech and other traditionally non-dividend-paying companies following suit. For decades, growthier names in the technology space have steered away from rewarding shareholders with a dividend — instead, reinvesting to meet growth targets, fund additional research, develop new products, and so on. However, we think the CEOs of major technology companies may face shareholder pressure in the coming quarters as to when they will be issuing dividends as well, and we can't wait.

A broader dividend trend

Technology isn't the only area where we are seeing exciting dividend news. Looking across the market, five companies in the S&P 500 initiated a dividend in 2023 and six reinstated their dividend. Toward the end of 2023, we saw a major telecommunication services provider announce its first-ever dividend. This past earnings season, a leading alternatives asset manager, which has experienced 22% dividend growth over the trailing 12 months, set guidance for 29% year-over-year dividend growth over the next 12 months — with the hopes of 39% growth in 2025 fiscal year.

We believe these are just a few significant examples of high-caliber companies with above-average cash levels and high durable free-cash-flow profiles that may be poised to offer dividends. With an increasingly confusing macroeconomic backdrop, we believe companies that demonstrate disciplined capital management will be rewarded.

As a team, we utilize a unique and flexible approach to dividend investing through our sustainers, growers and initiators framework. We've employed this framework for over 16 years, through varying environments, which has given us great insight into how companies balance the scales of growth and shareholder returns. We are confident our time-tested investment process positions us well to identify not only those companies that have demonstrated a track record of sustaining and growing dividends, but, more importantly, those that are ready to initiate a dividend.

Bottom line: Dividends potentially play a significant role in a portfolio — providing both a stream of income and a cushion for volatility — as well as aiding in compounding equity returns. Going forward, we believe more technology and growth companies are likely to initiate dividends or increase payments to investors, and we stand ready to capture this "new wave" of attractive sustainers, growers and initiators for our clients' portfolios.

1. Goldman Sachs, Portfolio Strategy Research, "US Weekly Kickstart," February 9, 2024.

Index definition:

S&P 500 Index is an unmanaged index of large-cap stocks commonly used as a measure of U.S. stock market performance.

Picture of Charles Gaffney

Article published byCharles Gaffney

Core/Growth Portfolio Manager

Eaton Vance Equity

Election Cycle is Very Likely to Impact Stocks

1.  During presidential election years over most of the last century, on average both U.S. large- and small-cap value have outperformed their growth peers.
2.  Value vs. Growth's dominance in election years also correlates with U.S. gross domestic product (GDP) growth and detraction.
3.  Incumbent candidates and parties keen to win reelection seek to make voters feel financially secure when heading to the polls.

As two thirds of global voters in democratically-elected governments go to the polls in 2024, politics are top of mind and will almost certainly impact the stock market this year. Kicking off the year, there is a major bifurcation in the market that leans heavily on general skepticism for global growth.

To set the stage, we look back at the last century of U.S. presidential elections and highlight a few notable statistics about historical markets during election years:

  • On average, during presidential election years, both U.S. large and small-cap value outperform their growth peers1 - in fact, large cap-value outperformed large-cap growth in 17 of the past 23 election years, dating back to 1932.
  • Zooming in on presidential elections between 1944 and 2020, U.S. gross domestic product (GDP) contracted in two of the last three quarters of the five of the six election years that value did not outperform.

Growth vs. Value Performance During Election Years

Value Chart 1

Source: Strategas, Fama-French Growth & Value Series

In 13 of the above elections, an incumbent candidate was running for reelection. Large value stocks underperformed large growth stocks only in 1972 and 1980 during those 13 years.

Economic growth is very important in the election cycle. Incumbent candidates and parties keen to win reelection seek to make voters feel financially secure when heading to the polls. Parties in office will, therefore, attempt to stimulate growth as much as possible through fiscal spending and possibly even monetary policy. Historically, this stimulation can be positive for both cyclical and small-cap stocks.

This phenomenon could be impactful for the market in a year such as 2024, potentially driving a broadening of the equity market beyond mega-cap companies. In our view, we are now back to prior extreme peaks in valuation for some of these companies and excessive narrowness in the market. Elsewhere, while there was multiple expansion during 2023, cyclicals sectors (such as consumer discretion, energy, basic materials and financials) lacked notable momentum.

At An Extreme: Nasdaq 100 Stock Index & Bloomberg Commodity Spot Index

Value Chart 2

Source: Bloomberg, as of February 12, 2024. The Nasdaq 100 has traded so strongly over the last year (and vice versa for the Commodity Index), and they are at an extreme valuation difference due to narrowness/stretched valuations in growth currently in the market.

While history does not always repeat itself, it typically has some valuable lessons. As we have written in a previous blog about how the Magnificent Seven2 have indeed lived up to their name, we believe much of this is due to recency bias and hopes for the future potential of artificial intelligence (AI). With the Magnificent Seven now at stretched valuations, and given the history of election years and spending, a balanced allocation likely makes sense.

We do not believe a rising tide will potentially lift all boats here. As earnings revisions fall into place, selectivity and having a well-defined thesis is essential. Our Opportunistic Value investment philosophy focuses on quality, leading companies that are mispriced or misunderstood by the market and are trading at a discount to their intrinsic value.

Bottom Line: We believe 2024 has several unique components to it, including a U.S. presidential election and the Federal Reserve's continued balancing act between maintaining inflation and growing the economy. Active management becomes more essential in an environment with many different drivers at play, in navigating and finding true potential opportunities in this unprecedented environment.

1 "Growth" and "Value" defined by Fama French, which uses attributes that define both elements, rather than index provider definitions. Fama and French Three-Factor Model (or Fama French Model for short) is an asset pricing model developed in 1992 that expands on the capital asset pricing model (CAPM) by adding size risk and value risk factors to the market risk factor in CAPM.

2 Magnificent Seven refers to Alphabet, Amazon, Apple, Meta Platforms, Microsoft, Nvidia, and Tesla.

Picture of Aaron Dunn, CFA

Article published byAaron Dunn, CFA

Co-Head of Value Equity

Portfolio Manager

Eaton Vance Equity

Picture of Bradley Galko, CFA

Article published byBradley Galko, CFA

Co-Head of Value Equity

Portfolio Manager

Eaton Vance Equity