By Paul R. La Monica

Dividend stocks are supposed to offer investors some safety and stability during times of market turmoil, but income-oriented stocks have been among the worst places to be as of late.

The SPDR S&P Dividend exchange-traded fund is down 9% in the past three months, compared with a slight gain for the S&P 500.

Simply put, dividends are no longer as attractive in a world where the 10-Year Treasury bond yield is inching toward 5%. The average yield for the S&P 500 is just 1.22%, according to FactSet.

And while many top techs in the S&P 500 -- including Apple, Nvidia, Microsoft, Meta Platforms, and Alphabet -- pay dividends, the yields are all under 1%. Tech investors are clearly still more enamored with growth over income.

But even investments in higher-yielding stocks have failed to keep up with the broader market. The ProShares S&P 500 Dividend Aristocrats ETF, which holds top dividend growers such as Emerson Electric, Walmart, Genuine Parts, and Cincinnati Financial, has tumbled 8.5% since mid-October.

That isn't to say investors should now shun dividends. They may just need to look for companies and sectors that offer a good mix of income and growth. They also could look to sectors that could benefit from economic factors, such as at energy and natural resources stocks that pay dividends and may get a boost from the recent spike in oil and other commodity prices.

The VanEck Energy Income ETF is up 10% in the past three months and has gained more than 4% already during just the first few trading days of 2025. The fund owns several major pipeline companies, which tend to offer high dividend yields and benefit from rising oil prices. Williams Cos., ONEOK, Enbridge, Cheniere Energy, and Kinder Morgan are the top five holdings. The fund has an average yield of 3.2%.

The Amplify Natural Resources Dividend Income ETF is another fund riding the recent spike in oil prices. The ETF, which has Brazilian energy giant Petrobras as its top holding and owns several high-yielding Master Limited Partnerships (MLPs) such as Western Midstream Partners, Energy Transfer, and MPLX as top holdings, is up 4.5% in 2025. The ETF yields 5.6%.

Investors might also want to consider overseas dividend payers. While U.S. dividend stocks have stumbled lately, the WisdomTree International Hedged Quality Dividend Growth Fund, Invesco S&P International Developed Quality ETF, and Franklin International Low Volatility High Dividend Index ETF have all held up better than the S&P 500 so far this year.

These three funds own a variety of European, Canadian, and Asian blue chips. Novo Nordisk and SAP are top stocks in the WisdomTree fund while the Invesco ETF has big holdings in Novartis and Nestlé. The WisdomTree and Invesco funds each yield 2.4%. The Franklin fund, which yields 3.5%, has large positions in Bank of Nova Scotia, Calgary-based Pembina Pipeline, Japan Tobacco, and Nippon Telegraph & Telephone Corp.

It just goes to show that even though many investors are betting on the American exceptionalism trade to continue during the second Donald Trump administration, there is still room for high-yielding international stocks in investor portfolios.

Write to Paul R. La Monica at paul.lamonica@barrons.com

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January 13, 2025 14:15 ET (19:15 GMT)

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