Will 2025 be a Comeback Year for Dividend Stocks?

Dividend stocks have been far outpaced by growth stocks, particularly Big Tech. Mitch discusses why this may change in the months ahead.

Could Dividend Stocks Mount a Comeback in 2025? As the S&P 500 Index rallies to new heights, one category has notably not been keeping pace: dividend-paying stocks. Year-to-date, the S&P 500 index is up approximately +27% (as I write), while the S&P 500 Dividend Aristocrats Index—which is made up of 66 companies that have continuously raised their dividends over two decades—is up about 8%.1 I think this gap could shrink meaningfully in 2025. 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—the Technology sector—is 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. Find Opportunity in 2025 with Data-Driven Insights As we head into 2025, focusing on data-driven insights can help you identify sectors poised for a rebound—like dividend-paying stocks in Health Care, Financials, and Utilities. Our December Stock Market Outlook Report 2 highlights why dividend stocks may mount a comeback in the year ahead and helps you stay grounded in proven strategies as the market evolves. Inside, you’ll find: Post-election market insights – What political shifts mean for investors. Key U.S. economic data – Trends shaping the economy. Global market analysis – How international factors could impact your portfolio. Zacks S&P 500 earnings insights If you have $500,000 or more to invest and want to learn more about these forecasts, click the link below to get your free report today! IT’S FREE. Download the Just-Released December 2024 Stock Market Outlook 2 Another reason is earnings. 2023 and 2024 were both years when mega-cap Technology companies, and in particular the “Magnificent Seven,” 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's -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’s 13% earnings growth. 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. 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’s 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's 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’re positioning as value plays in a high-growth sector. 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 ‘quality’ earnings tend to reside. I’m 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’ve seen in 2023 and 2024—which have essentially helped drive dividend stocks’ lag—tend 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. Bottom Line for Investors A stock’s price will go up and down over time, but a dividend payment is always positive once it’s made. What’s more, dividend payments are generally more predictable if an investor scrutinizes a company’s dividend payment history and earnings from quarter to quarter (which Zacks Investment Management does). 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—in fact, it may gain more appeal in the new year. Staying focused in today’s market means relying on objective analysis—not speculation or headlines. As we move into 2025, understanding where opportunities lie and how evolving market forces could impact your portfolio is critical. Our December Stock Market Outlook 3 delivers the clear, actionable insights you need to stay on track, including: Post-election market insights – What political shifts mean for investors. Key U.S. economic data – Trends shaping the economy. Global market analysis – How international factors could impact your portfolio. Zacks S&P 500 earnings insights If you have $500,000 or more to invest, request our free December Stock Market Outlook Report 3 today! About Zacks Investment Management Zacks Investment Management was born out of one of the country’s largest providers of independent research, Zacks Investment Research. Our independent research capabilities from our parent company truly distinguish us from other wealth management firms - our strategies are derived from research and innovation, including the proprietary Zacks Rank stock selection model, earnings surprise and estimate revision factors. 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