Dividends Are in a Rut
Dividends may be going through a rough patch, but income investors should exercise patience.


There is a doctrine that one year's investment champions become the subsequent year's failures. In 2023, this again is true, but the fallen heroes are unexpected: high-dividend-yield stocks and funds. The puzzle is whether dividend-focused strategies are set for years of relative decline, or if this is a case of massive short-term outperformance predictably returning to earth. I vote for the latter.
The backdrop: In 2022, high-dividend shares, led by energy and utility stocks, were the stoutest line of defense, along with the Dogs, the highest-yielding listings in the broad averages or each industry sector.
Exchange-traded fund ALPS Sector Dividend Dogs (SDOG) lost just 0.2% last year as the S&P 500 Index, including dividends, disgorged 18.1%. The ETF starts each year with equal stakes in the five highest-yielding stocks of 10 S&P 500 sectors (excluding real estate). So it's an indication broadly of whether big dividends are in or out of favor. Four times since 2013, the fund placed in the best 25% by total return among its Morningstar peers. (Funds I like are in bold; prices and returns are as of July 31 unless otherwise noted.)

Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
But now the bulls are running the Dogs ragged. The ALPS ETF is up just 3.1% in 2023, compared with 20.6% for the SPDR S&P 500 Trust (SPY), the giant S&P 500 ETF. (That is nearly an exact reversal of last year's numbers.) This is due to the 500's cluster of low- or zero-yielding tech kingpins, but even within tech, high-dividend listings such as Cisco Systems (CSCO), International Business Machines (IBM) and Texas Instruments (TXN) are going nowhere. Bank and energy stocks, which usually outyield the full market, are down. Utilities are in the red. Selective dividend ETFs, such as Schwab US Dividend Equity (SCHD) and Franklin US Low Volatility High Dividend (LVHD), are treading water, eroding excellent long-term performance records.
No question, U.S. cash dividends are in a rut, with 2023 increases running at a 4% pace – half last year's rate. Cash-rich and profitable companies including Apple (AAPL) and lithium king Albemarle (ALB), despite its 29 straight years of hikes, only granted quarterly boosts of 1 cent and half a cent, respectively. S&P Dow Jones Indices analyst Howard Silverblatt says that companies of all kinds thought (and may still think) the economic and earnings outlook is poor and stinted on their latest dividend actions despite evidence from 2022 that generous payouts protect shares from catastrophe.
Mark Barnes, of FTSE Russell, notes that 18 months ago, banks and money market funds paid zero or barely above, so a 2% dividend was decent. Now cash is competition, with risk-free yields exceeding those of nearly all common and preferred stocks, as well as corporate bonds.
What should income investors do now?
It depends on your cash needs and how your dividend distribution compares to your original or average cost. There is an argument for holding longtime stock positions that are treading water but not cutting payouts or suffering scandal or mismanagement.
Funds pay you well, too, but I suggest patience with new money. Create a waitlist for the Franklin and Alps ETFs as well as for the ProShares S&P 500 Dividend Aristocrats (NOBL) and pounce once the Federal Reserve finally quits tightening credit. There are also covered-call-option-enhanced ETFs: Global X NASDAQ 100 Covered Call (QYLD) and JPMorgan Equity Premium Income (JEPI). The Global X ETF, yielding 11.9% in late July, is an index fund; the JPMorgan ETF (7.8%) is actively managed.
Note: This item first appeared in Kiplinger's Personal Finance Magazine, a monthly, trustworthy source of advice and guidance. Subscribe to help you make more money and keep more of the money you make here.
Related content

-
-
How To Get the Best Savings Account Bonuses
By opening the right savings account today, you could be maximizing your earnings through both compound interest and cash bonuses.
By Erin Bendig Published
-
Find The Best 30-Year Mortgage Rates
30-year mortgage rates — check out the best here.
By Erin Bendig Published
-
Real Estate Investing Is Down But Not Out
Real estate investing has gone through the wringer in recent years, but tactical investors can find solid income-building opportunities at a discount.
By James K. Glassman Published
-
A Modern Guide to When You Actually Need to Tip
As new technology adds to social pressure, this modern guide to tipping reveals how to approach gratuities for everyone from your barista to the car mechanic.
By Laura Petrecca Published
-
How Stock Spinoffs Work — And How They've Performed
In theory, stock spinoffs should reward investors, but performance is mixed.
By Anne Kates Smith Published
-
Is It Time to Invest in Japanese Stocks?
New shareholder-friendly policies should boost Japanese stocks.
By Kim Clark Published
-
Valuation Metrics That Will Make You a Better Investor
With these valuation metrics, look beyond price-earnings ratios to get a more nuanced picture.
By Kim Clark Published
-
A New Bull Market Became Official in June, But It Looks a Little Wobbly
Stock market gains in a new bull market are promising, but financial experts predict a few stumbling blocks could bring down higher stock prices.
By Anne Kates Smith Published
-
Warren Buffett Advice: Why You Should Pick Businesses, Not Stocks
Can you beat the averages? Warren Buffett can. What can mere mortals learn from his success?
By James K. Glassman Published
-
Spotlight on Jensen Global Quality Growth Fund
The ability to invest overseas is a plus in today's market, and this global growth fund is one of the best ways to do it.
By Kim Clark Published