As the holiday season ramps up and the new year approaches, the tidings have been mixed for dividend investors.
Dividend growth stocks have lagged behind the market in 2025, but the S&P 500 is on course to set another record for total payouts of around $665 billion this year, according to S&P Dow Jones Indices.
A bellwether for dividend growth issues is the S&P 500 Dividend Aristocrats Index, which returned about 7% this year through Dec. 8, including dividends, versus 18% for the broader market. Its 69 constituents have boosted their dividends for at least 25 straight years.
On the plus side of the dividend ledger, 2026 should see another record for total payouts, and there are reasons for optimism for dividend stock performance in a few strategies, according to several analysts Barron's spoke with.
Chris Senyek, chief investment strategist at Wolfe Research, expects that "an improving economy leads to higher-than-normal dividend growth." He also predicts that more rate cuts by the Federal Reserve will make "dividend yield more attractive than it has been in a number of years," relative to Treasury bills and money-market funds. On top of that, corporate balance sheets are in good shape overall, he says.
As Senyek suggests, the overall economic and market environments look solid for dividend stocks in 2026. Dividend growth, after all, is hitched to earnings growth, which has been resilient.
Scott Chronert, head of U.S. equity strategy at Citi Research, expects the market to broaden out next year beyond large-cap tech companies, including artificial-intelligence plays. He is looking for a 14% gain in the S&P 500's 2026 profits, compared with 9% to 10% in 2025. "With that as a backdrop, I would expect that we'd see some improvement in dividend growth rates," he adds.
Elsewhere, BofA Securities forecasts that the strong profit cycle will continue, with S&P 500 earnings growing 12% this year and 14% in 2026. That should boost dividend growth to 8% next year, up slightly from 7% in 2025, according to BofA.
In a research note, analysts at the firm point out that the S&P 500's dividend payout ratio sits near a record low of 30%. A payout ratio measures the percentage of profits paid out in dividends. A lower ratio means there's more room for companies to raise their payouts.
Not everyone is as bullish on dividend growth. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, expects S&P 500 dividends per share to grow 6.2% next year. That's still above an expected 4.7% gain in 2025, according to S&P Dow Jones Indices -- but below the 6.4% and 5.1% increases notched in 2024 and 2023, respectively.
S&P 500 dividends per share grew by 10.8% in 2022, in a robust recovery following a slew of dividend cuts and suspensions during the pandemic. The last time S&P 500 dividends actually went into negative territory from the previous year was in 2009, during the financial crisis.
In looking ahead to 2026 dividend increases, Silverblatt cites tariffs and overall uncertainty as reasons for more caution among some companies. "If I increase the dividend, I have to keep that amount every quarter. I can't cut it," he says, adding that companies usually have more flexibility with stock repurchases from one quarter to the next.
Senyek of Wolfe Research says that buying dividend growth and dividend yield -- that is, investing in stocks with higher yields -- both make sense as investing strategies in 2026.
So far this year, dividend yield has held the upper hand. For example, the $85 billion Vanguard High Dividend Yield Index exchange-traded fund (ticker: VYM) returned 15.7% through Dec. 8, surpassing the Aristocrats index by about 10 percentage points. Recent top holdings in that fund included healthcare company AbbVie, which yields 3.1%, and Exxon Mobil, at 3.6%.
But a plus for the Aristocrats is that they are cheap, recently trading at close to a 20% discount to the S&P 500, according to Wolfe Research.
Senyek expects sectors such as real estate, energy, and utilities -- which are considered bond proxies because of their relatively high yields -- to be an attractive option in 2026, as well.
"If I can buy a 3 1/2 % or 4% dividend-yielding stock that has a margin safety for the dividend and it has some earnings growth, I might have a better total return than I would owning a money-market account," Senyek says, adding that he expects the Fed to continue to trim short-term rates.
Higher-yielding stocks are inexpensive, too. A basket of such names tracked by Wolfe Research trades at about a 40% discount to the broader market. Senyek, however, prefers companies in the second-highest quintile, or top 20%, as a way to avoid dividend traps with very big yields. Companies in that second quintile include Northern Trust, which yields 2.4%, and FedEx, at 2.1%.
Senyek's favorite long-term dividend-investing strategy over a full economic cycle is to buy companies with high dividend growth and high cash-flow yields. "That's a small list of companies because they have the ability to keep increasing the dividend at a faster pace than many other companies," he says. They include Qualcomm, which yields 2%, and Pitney Bowes, 3.7%.
Another place to look for yield heading into 2026 is the S&P 500 Dividend Aristocrats. Senyek expects the market in 2026 to favor "faster-growing companies, and that tends to be more in dividend growth." The Aristocrats include to Coca-Cola, which yields 2.9%; Chevron, 4.6%; Procter & Gamble, 3.1%; and J.M. Smucker, 4.4%.
"It's a confluence of different factors that make dividend strategies, in general, more attractive than they've been over the past couple of years," Senyek says.
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