Most indices continue to set new all-time highs, and while most areas of the market have joined in, many dividend stocks unfortunately have yet to follow suit
Dividends stocks are a staple among many investors’ portfolio. After all, who doesn’t like additional income? Most indices continue to set new all-time highs, and while most areas of the market have joined in, many dividend stocks unfortunately have yet to follow suit. The Schwab US Dividend Equity ETF (SCHD) is up less than 2% this year even including dividends, lagging the total return of the SPDR S&P 500 ETF (SPY) by over 7%. SCHD is also 8% off its all-time highs from November of last year. Things look even more bleak looking at just the last three months, as SCHD trails the S&P 500 by nearly 10%. That number peaked at 14.5% at the end of June, which is SPY’s largest three month spread against SCHD since the fund’s inception in 2011.
High dividend stocks usually have a defensive tilt; they are typically mature companies in established industries with lower growth prospects. Despite the correction in April, the market has been led higher by growth focused areas this year (read today’s feature for more info), making it hard for dividend stocks to keep pace with the broader market. Dividend stocks also benefit from falling interest rates, as their dividend yields become relatively more attractive to fixed income as rates drop. The market’s hope for rate cuts has dampened so far in 2025, as there hasn’t been a cut since last December. Coming into the year, there was only a 20% chance of no Fed cuts through July (Source: CME FedWatch). Additionally, the market entirely priced out the chance of zero cuts through July at the post-Liberation Day bottom. However, the last few months have not panned out as many investors expected, as there is now a 97% chance the Fed holds rates steady through their July meeting.
This combination of headwinds against dividend stocks is reflected in their relative strength, as SCHD holds a poor fund score of 1.80, in addition to a negative score direction of 1.75. This weakness extends to more than just domestic equities too. The average dividend fund on our Asset Class Group Scores page, including both domestic and international funds, holds a score of 3.71. While that score is in acceptable territory, it’s noticeably lower than the average global equity fund, as the All Global and International Diversified group has an average score of 4.28. In fact, the differential between the two groups of 0.57 points is the largest since early 2021.
Overall, the weight of the evidence points to dividends stocks being weaker than the broader market on average. However, select areas of strength with high yields are certainly out there for those requiring income. The NDW Yield Buy List provides several actionable names with at least a 3% yield. One example is Williams Companies (WMB), which has been a 5 or 5’er since 2022 and offers a 3.47% yield. The stock is on two consecutive buy signals and has been in a positive trend for five years. The stock is trading right above initial support at $57 to $56, with additional support at $52 and the bullish support line at $50.
