Dividend demand revives as market leadership shifts

Key Takeaways

Dividend growth is back, and it’s fair to say that outperformance among dividend growth stocks may simply be overdue amid a shift in U.S. equity market leadership beyond a small group of mega-cap technology companies.

A years-long tech stock rally has left the S&P 500 Dividend Aristocrats Index trading at just two-thirds of the price-to-book of the overall S&P 500.^[1] Now, with the performance of some of the large technology names cooling, the rest of the market may be catching up.

Market breadth has shifted beyond mega-cap technology

Dividend stocks are one area where the broadening of market performance seems to have brought investors back. The equal-weighted S&P 500 has outperformed the capitalization-weighted index this year, thanks to underperformance from some of the S&P 500’s largest names by market cap.

Fundamentals, not just weighting, strengthen the case

Weighting is only part of the story. By some measures, the equal-weighted S&P 500 may have weaker fundamentals than the capitalization-weighted index. The S&P 500 Dividend Aristocrats Index, however, is both equally weighted and only includes companies that have grown their dividends for 25 consecutive years. Their fundamentals tend to be stronger compared to the S&P 500.

Dividend Aristocrats Combine Higher Profitability With Lower Valuations

Earnings growth provides another measure of that strength. In the second quarter, the S&P 500 Dividend Aristocrats constituents grew their earnings by 34.6% year-over-year, a dramatic increase over a roughly 1.9% increase in the first quarter.^[1] This earnings acceleration may indicate that recent strength has more fundamental support than a short-term rotation alone.

1. Source: Bloomberg, data as of 9/11/26.