By Al Root

Dividend-paying stocks offered investors a haven from the war in the Middle East -- and they should continue to perform well even if a cease-fire takes hold.

As the conflict shifts to negotiations, it's still unclear what is happening on the ground. If the two-week cease-fire holds -- and oil flows through the Strait of Hormuz -- investors can go back to thinking about the economy and earnings growth. But if it doesn't, dividend stocks create a solid safety net for the fog of war.

They certainly were during the first three months of the year. Dividend Aristocrats -- companies that have raised dividends for at least 25 consecutive years -- returned about 2%, beating the S&P 500 by roughly six percentage points. Higher-yielding stocks outperformed the Aristocrats, which yield about 2% on average. The State Street SPDR Portfolio S&P 500 High Dividend exchange-traded fund, which yields 4.6%, returned 6% in the first quarter, while the Schwab US Dividend Equity ETF, which yields 3.4%, returned 13%.

But with worries about a slowing economy beginning to surface, high yields alone aren't enough to provide a margin of safety. Instead, they should look for companies that have the capacity to raise their payouts, says Trivariate Research founder Adam Parker, who notes that dividend increases have mattered more to stock performance of late. Capital returns to shareholders, including stock buybacks, are boosting stock more than in the pre-Covid era, he adds.

The key is the payout ratio -- the dividend compared with a company's net income or free cash flow. (It can also include buybacks to get a complete picture of capital returns.) A low payout ratio means companies have a lot of cushion to absorb economic or geopolitical shocks, while still churning out cash to shareholders. Parker advocates looking for low payout ratios to find dividend payers able to keep generating outperformance.

Parker's picks for companies with the ability, and willingness, to raise payouts include steel makers Commercial Metals and Steel Dynamics, memory chip maker Micron Technology, semiconductor manufacturing equipment maker Applied Materials, home builder Toll Brothers, Dell Technologies, natural-gas producer Range Resources, air conditioning distributor Wesco International, truck parts maker Allison Transmission, insurer Chubb, life-science companies Thermo Fisher Scientific and Danaher, power producer Constellation Energy, and engineering infrastructure firm Valmont Industries.

Those 14 recently raised their payouts and are expected to distribute only about 12% of their projected 2026 free cash flow as dividends. But the group yields less than 1%, and those management teams are more likely to buy back stock than pay dividends, which, while fine, isn't ideal for traditional income investors.

Investors looking for bigger dividends should consider S&P 500 stocks that yield more than 3%, and have excess cash flow to raise payouts and a willingness to do so. The willingness is key -- typically, two-thirds of dividend payers raise payouts annually, while about 4% cut. Companies that fit that criteria include advertising services firm Omnicom Group, financial technology provider Fidelity National Financial, consultant Accenture, Keurig Dr Pepper, insurer MetLife, Molson Coors Beverage, drugmaker Bristol Myers Squibb, chicken and beef producer Tyson Foods, and computer and printer maker HP Inc. All nine raised their payouts in the past year.

They also yield an average of 4%, have stable or growing earnings, and are only expected to payout roughly 30% of the estimated 2026 free cash flow as dividends, below the roughly 40% ratio for stocks in the Vanguard Dividend Appreciation ETF, which targets dividend growers and yields about 1.7%.

If nothing else, those dividends should help investors stay calm -- no matter what the world throws at them this 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

April 09, 2026 11:24 ET (15:24 GMT)

Copyright (c) 2026 Dow Jones & Company, Inc.