{"id":9976,"date":"2024-12-23T15:10:04","date_gmt":"2024-12-23T15:10:04","guid":{"rendered":"https:\/\/zacksim.com\/financial-professionals-insights\/?p=9976"},"modified":"2025-04-14T17:28:08","modified_gmt":"2025-04-14T17:28:08","slug":"will-2025-be-a-comeback-year-for-dividend-stocks","status":"publish","type":"post","link":"https:\/\/zacksim.com\/financial-professionals-insights\/will-2025-be-a-comeback-year-for-dividend-stocks\/","title":{"rendered":"Will 2025 Be A Comeback Year For Dividend Stocks?"},"content":{"rendered":"\n

Could Dividend Stocks Mount a Comeback in 2025?<\/strong><\/p>\n\n\n\n

As the S&P 500 Index rallies to new heights, one category has notably not been keeping pace: dividend-paying stocks.<\/p>\n\n\n\n

Year-to-date, the S&P 500 index is up approximately +27% (as I write), while the S&P 500 Dividend Aristocrats Index\u2014which is made up of 66 companies that have continuously raised their dividends over two decades\u2014is up about 8%.1<\/sup><\/p>\n\n\n\n

I think this gap could shrink meaningfully in 2025.<\/p>\n\n\n\n

One reason is valuations. As I write, the S&P 500 index is trading at roughly 23x forward earnings, but a big driver of recent returns\u2014the Technology sector\u2014is trading at over 30x forward earnings. Meanwhile, the Health Care, Financials, and Utilities sectors, where we tend to find more value companies that pay dividends, are all trading at roughly 18x forward earnings. Investors may look kindly at sectors and companies that trade at a discount to the broad market, particularly at a time when some are starting to worry about overheating.<\/p>\n\n\n\n

Another reason is earnings. 2023 and 2024 were both years when mega-cap Technology companies, and in particular the \u201cMagnificent Seven,\u201d were running ahead of all other sectors in annual earnings growth. The Magnificent Seven generated 35% earnings growth in 2023 and 29% (estimated) in 2024, compared to the rest of the S&P 500\u2019s -4% and 2% (estimated) earnings growth over the same period. I expect this dynamic to shift considerably in the new year, with the Magnificent Seven producing 19% earnings growth in 2025 compared to the rest of the S&P 500\u2019s 13% earnings growth.<\/p>\n\n\n\n

As earnings growth broadens beyond Technology, I think investors could rotate to areas of the market where earnings growth is accelerating versus decelerating. We saw early signs of this rotation in Q3, in my view, as value outperformed growth and sectors outside of Technology were the ones driving strong gains for the quarter. I think this trend could continue in 2025.<\/p>\n\n\n\n

A third reason I think dividend-paying stocks could make a comeback in 2025 is that investors are increasingly demanding cash. The S&P 500\u2019s dividend yield recently hit a 20-year low when it dropped below 1.19%, compared to the long-term historical average of 4.3%. In an environment where interest rates have recovered on risk-free securities like Treasurys, companies are realizing that there\u2019s increased competition for yield, and many are responding by raising dividends or initiating them for the first time. Indeed, some very notable technology behemoths shifted to paying dividends for the first time in 2024, which I view as a signal to markets that they\u2019re positioning as value plays in a high-growth sector.<\/p>\n\n\n\n

A final reason I think dividend stocks could experience a turnaround in 2025 is volatility. The last time dividend stocks outperformed the broad market was in 2022 when recession fears pulled investors towards utilities, consumer goods, and other sectors where value stocks and \u2018quality\u2019 earnings tend to reside. I\u2019m not suggesting that recession fears will necessarily return in 2025, or that a bear market is in the offing. But powerful rallies like what we\u2019ve seen in 2023 and 2024\u2014which have essentially helped drive dividend stocks\u2019 lag\u2014tend to invite greater levels of volatility in the future, especially if lofty growth forecasts show any signs of not being met. As the new administration aggressively pursues its new economic agenda, there could be speed bumps and instances of uncertainty. The short-term volatility that could follow could benefit dividend-paying stocks, in my view, which would be viewed as stable and steady.<\/p>\n\n\n\n

Bottom Line for Investors<\/strong><\/p>\n\n\n\n

A stock\u2019s price will go up and down over time, but a dividend payment is always positive once it\u2019s made. What\u2019s more, dividend payments are generally more predictable if an investor scrutinizes a company\u2019s dividend payment history and earnings from quarter to quarter (which Zacks Investment Management does).<\/p>\n\n\n\n

When we invest in dividend-paying stocks, we look for high-quality companies paying dividends that they can sustain and also grow over time. I see a dividend-stock strategy as a middle ground between a fixed-income strategy and a high-growth strategy, part of a diversified approach that can serve to reduce overall portfolio volatility. In this sense, a well-constructed dividend strategy is not losing its appeal\u2014in fact, it may gain more appeal in the new year.<\/p>\n","protected":false},"excerpt":{"rendered":"

Dividend stocks have been far outpaced by growth stocks, particularly Big Tech. Mitch discusses why this may change in the months ahead.<\/p>\n","protected":false},"author":4,"featured_media":9971,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[181,1],"tags":[],"class_list":["post-9976","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-financial-professionals","category-mitch-on-the-markets"],"acf":[],"_links":{"self":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9976","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/users\/4"}],"replies":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/comments?post=9976"}],"version-history":[{"count":2,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9976\/revisions"}],"predecessor-version":[{"id":9978,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/posts\/9976\/revisions\/9978"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media\/9971"}],"wp:attachment":[{"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/media?parent=9976"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/categories?post=9976"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/zacksim.com\/financial-professionals-insights\/wp-json\/wp\/v2\/tags?post=9976"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}