A Comeback is Coming for Dividend Stocks in 2025

Dividend-focused stocks may finally be poised for a resurgence, offering investors a promising alternative amid shifting market dynamics. Companies known for their robust dividend payouts, such as JPMorgan Chase and Merck, are expected to perform better in the coming year, according to some market participants. With tech stocks appearing overvalued and the appeal of bonds potentially waning due to falling interest rates, dividend-paying equities are becoming increasingly attractive.

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Historically, dividend-paying stocks have been a safe haven during market downturns or periods of economic uncertainty. Companies in sectors like utilities and consumer staples often deliver consistent earnings regardless of economic conditions, making them reliable options for investors. However, during bull markets, these stocks typically underperform, particularly since 2020, when mega-cap tech names like Tesla and Nvidia led the market to new heights.

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This year, the gap in performance between the S&P 500 and dividend stocks has widened significantly. For some investors, this disparity signals a buying opportunity. Chris O’Keefe, a portfolio manager at Logan Capital Management, believes this is an opportune moment to invest in dividend stocks. Logan Capital’s dividend portfolio has recently increased its exposure to financial stocks, including Regions Financial, while maintaining overweight positions in Visa and Raymond James Financial. O’Keefe also highlights the value in healthcare stocks, which he expects to increase their dividend payouts over time.

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Despite these opportunities, dividend growth has not kept pace with the broader market rally. The S&P 500’s dividend yield recently hit a 20-year low, dropping below 1.19%. This reflects the underperformance of dividend stocks relative to the overall market. For instance, the S&P 500 Dividend Aristocrats Index, which includes companies that have consistently raised their dividends for at least 25 years, has lagged behind the broader S&P 500 since 2020.

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Dividend-paying stocks did experience a brief revival in 2022, as recession fears pushed investors toward more stable sectors like utilities and consumer goods. However, this trend reversed in 2023 when rising interest rates made bonds and money-market funds more appealing. Consequently, major companies adopted a cautious approach, holding onto cash in the face of economic uncertainty. Meanwhile, dominant tech stocks regained their leadership, driving the market to record highs.

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This year, the S&P 500 has delivered a total return of 28%, including price gains and dividends, significantly outperforming the S&P 500 Dividend Aristocrats’ 14% return. Dividend-focused exchange-traded funds (ETFs) from major providers like BlackRock, Charles Schwab, and Vanguard have posted returns ranging from 13% to 20%.

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Looking ahead, a rebound in dividend stocks might be on the horizon. Bank of America analyst Ohsung Kwon predicts a 10% increase in total dividends by S&P 500 companies in 2025, driven by growing investor demand for cash returns. This trend is evident even among tech giants like Meta Platforms and Alphabet, which introduced dividends this year for the first time. These companies accounted for about 25% of the underlying dividend growth in the third quarter, according to data from Janus Henderson.

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This week, dividend-paying stocks received a boost from announcements by AT&T and Walt Disney. AT&T, previously removed from the Dividend Aristocrats Index for cutting its dividend, committed to returning over $40 billion to shareholders through stock buybacks and dividends over the next three years. Walt Disney also announced a 33% increase in its annual dividend starting next year.

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However, predicting the trajectory of dividend stocks under a new presidential administration remains challenging. President-elect Donald Trump’s policies, such as reshoring and increased drilling, could potentially benefit traditional "old economy" sectors, according to Brian Bollinger, founder of Simply Safe Dividends. Bollinger noted that after Trump’s 2016 election, sectors like consumer discretionary initially outperformed but struggled to maintain their lead over the long term.

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Haverford Trust, managing over $15 billion in assets, remains committed to dividend-paying stocks as part of its investment strategy. The firm has held shares of Dividend Aristocrats such as Johnson & Johnson and Coca-Cola since its inception in 1979. This year, it added Alphabet to its portfolio following the company’s dividend initiation and increased its position in Nvidia after its stock split and dividend hike.

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Hank Smith, Haverford Trust’s head of investment strategy, views dividend payers as a safer bet compared to the broader market. He expressed skepticism about the sustainability of a market rally driven by a small number of dominant stocks, calling it a defiance of basic mathematical principles. High-dividend stocks from companies like Altria Group, Philip Morris International, and healthcare firms such as Pfizer, Merck, and Bristol-Myers Squibb have provided solid yields this year, with modest annual increases.

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Despite the current challenges, dividend-paying stocks offer a compelling option for investors seeking yield in a market where valuations are stretched. However, finding attractive opportunities is more difficult than it was a decade ago, said Smith. As the market evolves, dividend stocks could become a key component of balanced portfolios, especially as interest rates and tech valuations shift.

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