Dividend investors tend to be patient, but lately their patience has been tested. Dividend stocks have badly lagged the rest of the market recently. The S&P Dividend Aristocrats – a list of companies in the S&P 500 index that have raised their dividends for at least 25 years in a row – have returned less than 10% over the 12 months that ended February 29. The S&P 500 gained more than 30% over the same period.
A major reason for the recent underperformance is the surge in interest rates that began in 2022. When rates on Treasury securities and cash accounts were stuck below 1%, dividend stocks' yields were attractive by comparison. But with short-term Treasury securities and cash accounts paying more than 4%, compared with the S&P 500's current yield of 1.5%, dividend stocks have been a tougher sell. That could change with expected rate cuts from the Fed later this year.
