By Hannah Erin Lang

Rattled by the threat of trade restrictions and a slowing economy, some investors are turning to a classic defensive play: dividend stocks.

Shares of companies that offer relatively hefty cash payouts are beating the broader market this year. Some of the market's largest dividend-focused funds, such as the Schwab US Dividend Equity ETF and the SPDR S&P Dividend ETF, have risen more than 4% in 2025, even as major indexes slipped into the red.

Some of the largest dividend payers have posted significant gains. The S&P 500 Dividend Aristocrats -- an index of companies that have raised dividends in each of the past 25 years -- has returned about 3.5% this year, counting price changes and dividend payments as of Thursday's market close. The index constituents Coca-Cola and Johnson & Johnson have both notched double-digit-percentage increases in 2025. Meanwhile, recent stock-market stars including Nvidia and Broadcom have sunk more than 15%.

As President Trump's tariff threats helped drag the S&P 500 to its worst week since September on Friday, some money managers said such time-tested stocks, and their regular cash payments, could shine even brighter in the months ahead.

"There haven't been many risk-averse investors over the last couple of years," said Jared Hoff, a senior portfolio manager at Federated Hermes who manages several dividend-focused funds. "There are a lot of different factors right now shifting attention back in our direction."

Investors will get a look at the health of the U.S. economy in the week ahead, with fresh data on job openings and wholesale prices as well as a key inflation report Wednesday.

Dividend payers are just one of the safety plays gaining popularity on Wall Street. Investors have flocked to other havens such as gold and U.S. Treasurys, while fleeing stocks in smaller companies or the financial sector that could be sensitive to an economic slowdown. But many prefer dividend stocks to such alternatives, because holding stocks allows investors to capture the gains if share prices rise, while the regular dividend payments help cushion declines.

Brian Bollinger is the president and founder of Simply Safe Dividends, which sells an online tool to help customers track and manage their dividend-focused portfolios. The company -- which calls itself "boring and conservative" on its website -- hasn't seen sales grow this quickly at the start of the year since 2022, Bollinger said.

"More people are starting to think about safety," he said. "Safety hasn't been sexy since 2022."

The upswing contrasts with a couple of tough years for dividend payers. As interest rates rose, income-focused investors could get more-attractive yields from bonds. Market standouts such as the Magnificent Seven tech stocks soared, powered by optimism about the transformative nature of artificial intelligence. That left many mature, dividend-paying companies in the dust.

But the tech-heavy bets that delivered blockbuster returns in last year's market have faltered so far in 2025. The Roundhill Magnificent Seven ETF has dropped 10% this year.

John Bevis, a full-time trader based in Clemson, S.C., predicted earlier this year that policy uncertainty might lead to market turmoil. He scaled back his position in big tech companies like Tesla and Nvidia in January and February, he said, and picked up shares of Coca-Cola and the household-products provider Procter & Gamble.

"With higher inflation, people aren't going to buy more Teslas," Bevis, 32 years old, said. "With this uncertainty, you've got to stick to the solid companies that have been around for 100 years."

Dividend stocks aren't risk-free. Share prices can still post big swings when markets slide or a given company runs into problems.

In addition, the broader equity markets' rise to record territory before the recent downturn has made high dividend yields from major U.S. companies harder to find. The S&P 500's dividend yield sat around 1.3% as of Thursday's market close, among the lowest levels in more than 20 years. Some of the largest companies in the market have lately become increasingly focused on using cash to spur growth, instead of distributing it to shareholders.

But many of the most well-known dividend stocks -- such as Walmart or the healthcare company Abbott Laboratories -- are mature, well-established companies in industries that money managers say are less susceptible to market swings.

Quarterly dividends can offer a secure return in a market that is looking increasingly uncertain. said Jacob Kuehl, a supply-chain planning manager based in the Portland, Ore., area who thinks it is a good time to be an income-focused investor.

Though dividend stocks already make up about half of his portfolio, Kuehl said he plans to keep buying up shares of Nike and Exxon Mobil, he said, as well as smaller stocks like Papa John's International and Blue Owl Capital.

"It seems to be a really frothy market -- really jittery," he said. "What I'm banking on is that people are going to move to security."

Write to Hannah Erin Lang at hannaherin.lang@wsj.com

(END) Dow Jones Newswires

March 08, 2025 21:00 ET (03:00 GMT)

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