By Al Root

The revenge of the real means there is room for dividend stocks to keep working. There are several ways for income-seeking investors to ride that wave.

The mini-tech wreck, triggered by fears that artificial intelligence will disrupt everything while not earning AI producers much, has hit lots of stocks, including software and even the Magnificent Seven. Coming into the week, the Roundhill Magnificent Seven exchange-traded fund was down about 7% year to date and the State Street SPDR S&P Software & Services ETF was off 23%. The tech-heavy Nasdaq Composite trailed the Dow Jones Industrial Average by six percentage points, with investors pivoting back to products tougher for AI to disrupt, such as food, planes, and heavy machinery.

Real things are typically produced by mature businesses with a history of paying dividends. The State Street Consumer Staples Select Sector SPDR ETF was up 15% year to date heading into the week. It yields about 2.8%, far better than the 1.2% of the S&P 500.

The rotation extends a trend. Dividend strategies did surprisingly well in 2025, says Wolfe Research chief investment strategist Chris Senyek. The adverb is apt because dividend-paying stocks have long struggled. From 2019 through 2024, the Vanguard High Dividend Yield ETF returned 9% a year. Invesco QQQ Trust, which tracks the Nasdaq 100, returned almost 20% a year. The result: Dividend yields remain historically low, with most of the love in the market going to low- or no-dividend-paying tech stocks with a foot, or two, in the AI pool. ( Nvidia pays a penny per quarter, the lowest-yielding stock in the S&P 500, at 0.02%.)

Last year saw a turnaround. Dividend strategies Senyek tracks -- including high-dividend-yielding stocks, high-dividend growth plus high free-cash-flow yield, and dividend growth -- met or beat S&P 500 returns. With the Federal Reserve cutting rates, he expects income themes to keep working. Short-term Treasury yields are high relative to dividend yields, historically speaking, he says, and if rates come down, dividends will look more attractive.

Investors can also expect more dividend growth. S&P Global forecasts U.S. dividend payouts to rise 6.5% in 2026 to almost $830 billion. That's down from 7.3% in 2025, but still a healthy level. Over the past few decades, S&P 500 dividends have grown annually by roughly 6%. Sectors poised for faster growth include insurance, media, consumer services, commercial services, and semiconductors.

The highest-yielding stocks in those areas, with dividends covered by net income, include advertising services firm Omnicom, insurer MetLife, chip maker Qualcomm, check maker Deluxe, and vacation rental company Travel + Leisure. Those five yield an average of 3.5%.

The Dividend Aristocrats, companies that have raised dividends for at least 25 consecutive years, are "historically cheap," adds Senyek. The group of 70 stocks trades at some 80% of the S&P 500's price/earnings ratio. Aristocrats typically trade at about 100% of the P/E ratio, which is about 22 times forward earnings.

Combining Senyek's favorite themes on dividend growth and higher-than-average yield offers nine new ideas: healthcare companies Becton Dickinson and Abbott Laboratories, industrial distributor Fastenal, automation provider Nordson, industrial gas supplier Linde, gas utility Atmos Energy, staples producer Church & Dwight, water heater maker A.O. Smith, and defense contractor General Dynamics. Their average yield: 1.8%.

High-yield and dividend-growth ETFs remain options. However investors decide to express dividend themes in their portfolios, they can rest easier knowing that income strategies look solid in the new year.

Write to Al Root at allen.root@dowjones.com

This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.

(END) Dow Jones Newswires

February 19, 2026 01:30 ET (06:30 GMT)

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