There is a "cash is king" craze on Wall Street, with the market favouring companies that pay cash dividends rather than share buybacks.

The data show that exchange-traded funds designed to invest in companies with large free cash flow--$Pacer US Cash Cows 100 ETF (COWZ.US) $It is up about 2% so far this year, while the main stock index has fallen by double digits.

In the S & P 500, many of the stocks with the highest dividend yields have been soaring and have outperformed the broader market.Shares of cigarette maker Altria Group Inc Group Altria Group are up 13%, and plumbing operator Oneok is up 12%. Both stocks have dividend yields of more than 5 per cent, according to FactSet. But the s & p 500 is down 17% this year, hovering on the brink of a bear market.

First-quarter dividends for S & P 500 stocks reached a record $137.6 billion, according to S & P Dow Jones, and Howard Silverblatt, a senior index analyst, expects a new record this quarter.

So far this year, the S & P 500 high dividend index ETF$SPDR slide 500 High Dividend ETF (SPYD.US) $It is up 5%, while the s & p 500 Buyback index is down 12%.

Credit Suisse analysts say that since the beginning of 2020, companies that pay high dividends have consistently outperformed those that pay fewer dividends, while the shares of those that spend the most money on share buybacks have lagged behind those with the least share buybacks.

With stocks rocked by concerns about rising interest rates, high inflation and slowing economic growth, the market is going through its most volatile period in the past decade, with investors flocking to companies that have promised regular dividends to shareholders. this shows Wall Street's thirst for cash at a time when the Fed is raising interest rates and major stock indices are struggling.

High inflation and rising interest rates erode the value of future earnings and increase the attractiveness of current cash.

The huge gap between large US stocks with the highest dividend yields and those that do not pay dividends is also a clear indication of investors' thirst for cash.

The stock with the highest dividend yield in the Russell 1000 index rose by an average of 4% over the next six months, but shares of companies that did not pay dividends in the index fell by an average of 29% over the same period, according to Bespoke Investment Group.

According to the Wall Street Journal, Miramar Capital founder Max Wasserman said:

If I have to choose between buying more shares and giving me cash... I'd rather have cash.

In recent years, many investors have flocked to companies with higher valuations, many of which will only pay huge dividends in the future. This year, many of these bets made a U-turn, putting pressure on the market. Investors say the free cash flow currently provided by dividend-paying companies is more valuable to them because of current high interest rates.

JOHCM Global Income Builder Fund's fund, Giorgio Caputo, said he has been bullish on energy companies recently because dividends are likely to increase. In addition, he adjusted his portfolio because of inflation and rising interest rates:

This is almost the 180-degree shift we have seen in the past decade.