Dividends in the stock market aren’t what they used to be.
Did you know the percentage of S&P 500 stocks paying dividend yields greater than a 10-year Treasury is at historical lows? Check out this chart from Ned Davis Research1:
Often investors, especially as they age, want dividends to help fund their cash flow instead of having to sell some of their shares.
Those are harder to find.
Investors can make bad decisions by focusing on yield alone. The fact that a stock pays a high or consistent dividend isn’t the whole story. Furthermore, in recent years, growth stocks—especially in the tech sector, which typically pays little to no dividend—have delivered much higher total returns than dividend-focused stocks. In the chart below, the Vanguard Growth ETF (red line) has outperformed key dividend ETFs.
This does not mean dividends aren’t significant. Reinvesting dividends is a key part of compound growth.
Investors have different goals and needs, and dividend companies can play a role, but don’t make the mistake of only looking at yield. Quality matters.
Financial writer Larry Swedroe, over at Morningstar, comes to the following conclusion:
First, there is nothing special about dividends except that they are a tax-inefficient way to return capital to shareholders, and they are certainly not income (except from a tax perspective); they are just a return of capital. Second, investors are better served by focusing on investing in strategies that provide exposure to the factors they want to invest in. A focus on dividends, whether dividend growth or high-dividend yield, is not likely to add value.2
The lesson is: invest in quality companies. Don’t fall for the dividend alone.
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Sources:
1. Published on X by Liz Ann Sonders, a Chief Investment Strategist at Schwab Center for Financial Research, on August 20, 2026. Accessed online.
2. “There is Nothing Special About Dividends”, April 10, 2024. Accessed online.