Dividend stocks are catching up to tech stocks on key earnings metric

Dividend-paying companies are rapidly closing the earnings growth gap with tech stocks, adding more earnings momentum to the global economy. S&P 500. Following a significant increase in this key earnings metric over the past year, the trend suggests dividend stocks could make an even stronger case for investors seeking income and safety in a volatile market.

The expansion of earnings momentum beyond the tech sector comes as investors look for ways to limit risk amid the second military conflict in the Middle East in less than a year and an unprecedented shock to oil markets.

In the first quarter of 2025, the S&P 500 Dividend Aristocrats Index reported negative earnings growth of 5.5%. As of the 4th quarter of last year, the earnings growth rate increased to 9%. At the same time, Nasdaq 100 Index saw earnings growth fall from 35% in Q2 2025 to less than 15% in Q4.

ProShares global investment strategist Simeon Hyman said on CNBC’s “ETF Edge” podcast this week that the rotation that began long before the war out of Mag 7 tech stocks deserves deeper scrutiny from investors at a time of market uncertainty.

“We think one of the best ways to capitalize on this is through quality stocks, where companies have increased their dividends for at least 25 years in a row and that has fallen out of favor,” he said.

Although the turnaround began before the start of the war, Hyman said high-quality, lower-volatility stocks could be “a good thing to have during the conflict.”

“It’s not just the price [of the stocks] It’s turning, but the fundamentals are turning,” he said. “If you go back four quarters, all the earnings growth was coming from the tech sector and the Nasdaq 100. Dividend growers’ earnings were shrinking slightly from year to year. But now the gap has closed and it may soon go the other way. “We have almost reached parity,” he said, citing Bloomberg data cited by ProShares. a new blog post relevant.

ProShares S&P 500 Dividend Aristocrats ETF (NOBL) is one of many exchange-traded funds that offer exposure to major U.S. stocks that pay healthy dividends. Its three largest holdings are: Strip, ExxonMobil And Aim.

ETF experts agree that the outlook for dividend stocks is improving in the market.

“The growth characteristics of companies in the financial sector, the healthcare sector, the industrial sector…those are generally where dividend growth is seen. They continue to experience more and more growth,” Todd Rosenbluth, head of research at VettaFi, told CNBC.

The long history of dividend increases reflects consistent cash flow and disciplined management, but this has not matched the rapid profit growth traditionally seen in the technology sector. But strong operating performance and rising margins have helped boost profits for many dividend payers from other sectors. As their earnings increase, these companies continue to increase their dividends while strengthening their balance sheets. At the same time, expectations for tech stocks remain extremely high after several years of strong gains, and tech firms are spending huge sums on AI developments that are straining their balance sheets and cash flows. Dividend-paying companies outside of technology generally trade at more modest valuations, and as their earnings grow, investors may view them as companies that offer both stability and expansion.

Of course, if factors such as the US-Iran war and oil prices persistently above $100 and the prolonged closure of the Strait of Hormuz push prices upward in a supply-depleted economy and drag the global economy into recession, there can be no certainty for stock investors. Dividend stocks and the ProShares NOBL ETF have been affected by the recent negative sentiment in the stock market, falling 5% last month but still up nearly 8% last year.

Hyman said that in his view, this is “definitely not a time to surrender, but perhaps a time to tweak the edges and focus more on quality stories.” “We love our dividend growers,” he said.

Following the two previous Gulf wars, which led to protracted conflicts, stocks rose as much as 25-30 percent in six- to 12-month periods after the initial pullbacks, he noted. “The history is pretty clear… markets are recovering,” he said.

Hyman said history is also clear that dividend stock performance has “some resilience.” And right now these stocks are pulling even more weight in the market. “The other thing that is very important, in addition to the persistent outperformance opportunity that dividend growers present, is that they keep the overall S&P 500 fundamentals stable,” Hyman said. “They’re filling the gap now,” he said, adding that while mega-cap tech earnings growth has fallen, “it points to a bit of a soft landing.”

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