It has not been a bad year by any stretch for dividend stocks and the related exchange traded funds, but on a relative basis, there’s no getting around the fact that these stocks have lagged the broader market. That’s the result of large- and mega-cap growth stocks — many of which are small dividend payers or not dividend payers at all — powering the broader market. While it’s tough to bet against that group’s potential success in 2025, some experts see opportunities in equity income, indicating ETFs such as the VanEck Morningstar Durable Dividend ETF (DURA ) could be worth considering in the new year.
DURA, which follows the Morningstar US Dividend Valuation Index, focuses on attractively valued companies with compelling financial health. The latter trait can be an accurate harbinger of a firm’s ability to maintain and grow its payout over the long-term — valuable information for investors looking to maximize the benefits of equity income over lengthy holding periods.
Depend on DURA in 2025
Sectors known for being dividend hotbeds largely lagged the broader market this year, but there were areas of strength. Those include financial services and utilities, which account for about 20% of the DURA portfolio.
“Those are both sectors that are overexposures for the dividend index, overweight. Financial services had a really strong year. Banks did really well,” noted Morningstar analyst Dan Lefkovitz. “There was a big post-election surge, anticipation of lighter regulation. There’s also yield-curve steepening, which is good for banks because it increases that spread between the deposit rates and the lending rates. Banks did do really well. Utilities did really well.”
Speaking of sectors known for dividends, healthcare has been an offender of sorts. That group, which accounts for 21.66% of the DURA roster, has been a dud this year. However, it’s littered with cash-rich, wide-moat companies trading at attractive valuations, indicating the ingredients are there for a 2025 resurgence.
At the macro level, catalysts for dividend stocks and DURA could emerge, including more interest rate cuts or a rotation to value stocks. Additionally, a lower return climate could compel investors to embrace dividend fare.
“I also wonder if a more sort-of subdued return environment, if returns aren’t 30%, 25% like we’ve been seeing recently, where reinvested dividends are a bigger chunk of the overall total return that you get from equities might make them sort of more important and might put pressure on companies to elevate their dividends,” added Lefkovitz.
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