Dividend-paying companies are quickly closing the earnings growth gap with technology stocks and adding to earnings momentum S&P 500. After a significant increase in this key earnings metric last year, the trend suggests that dividend stocks could make an even stronger case for investors seeking income and security in a volatile market.
The earnings momentum extending beyond the technology sector comes at a time when investors are looking for ways to limit risk amid the second military conflict in the Middle East in less than a year and an unprecedented shock to oil markets.
In the first quarter of 2025, the S&P 500 Dividend Aristocrats Index recorded earnings growth of negative 5.5%. By the fourth quarter of last year, the earnings growth rate had returned to positive 9%. At the same time it is Nasdaq 100 index saw earnings growth decline from over 35% in the second quarter of 2025 to under 15% in the fourth quarter.
Simeon Hyman, global investment strategist at ProShares, said on CNBC’s “ETF Edge” podcast this week that the rotation away from Mag-7 tech stocks well before the war deserves a closer look from investors at a time of market uncertainty.
“We believe one of the best ways to benefit is to use quality stocks, meaning companies that have increased their dividends for at least 25 years in a row, and that have fallen out of favor,” he said.
While the shift began before the war began, Hyman said that high-quality stocks with lower volatility “might kind of be good during a conflict.”
“It’s not just the price [of the stocks] “If you look back four quarters, all of the earnings growth came from the technology sector and the Nasdaq 100. As dividends grew year-over-year, earnings fell a bit.” But now the gap has closed and could soon go the other way. “We’re almost at parity now,” he said, referring to Bloomberg data that ProShares cited in a recent blog post on the topic.
ProShares S&P 500 Dividend Aristocrats ETF (NOBLE) is one of the many exchange-traded funds that provide exposure to large-cap, high-dividend U.S. stocks. The three largest holdings are Chevron, Exxon Mobil And Goal.
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Performance of the S&P 500 Dividend Aristocrats Index over the past year.
ETF experts agree that the outlook for dividend stocks across the market has improved.
“Growth characteristics of companies in the financial sector, the healthcare sector, the industrial sector… that’s where you often find dividend growth. They continue to see more and more growth,” Todd Rosenbluth, head of research at VettaFi, told CNBC.
A long history of dividend increases reflects consistent cash flow and disciplined management, but has not traditionally corresponded to the rapid profit growth seen in the technology sector. But strong operating performance and improving margins have helped boost profits for many dividend payers from other sectors. And as profits rise, these companies continue to increase their dividends while strengthening their balance sheets. At the same time, expectations for technology stocks remain extremely high after several years of strong gains, and as technology companies spend huge sums on expanding AI, this is putting a strain on their balance sheets and cash flow. Dividend-paying companies outside of the technology sector often trade at more modest valuations, and as their earnings growth improves, investors may increasingly see them as providing both stability and expansion.
Of course, if the U.S.-Iran war — and factors like oil prices persistently above $100 and an ongoing closure of the Strait of Hormuz — drive up prices in a supply-depleted economy and plunge the global economy into recession, there is of course no sure thing for stock investors. Dividend stocks and the ProShares NOBL ETF have been hit by recent negative sentiment in the stock market, losing 5% over the past month but still up nearly 8% over the past year.
Hyman said he believes this is “certainly not the time to capitulate, but perhaps the time to tweak the boundaries” and focus more on quality stories. “We love our dividend growth drivers,” he said.
He found that after the previous two Gulf Wars, which were protracted conflicts, stocks were higher, by as much as 25-30%, in the six to 12 months after initial setbacks. “The story is pretty clear … the markets are actually recovering,” he said.
The story is also clear, Hyman said, in that the outperformance of dividend stocks has “some durability.” And right now, these stocks are holding even more weight in the market. “In addition to the continued outperformance opportunity for dividend growers, it is also very important that the overall fundamentals of the S&P 500 have been kept stable,” said Hyman. “They’re now filling the gap,” he said, as mega-cap tech companies’ earnings growth slows, “and that points to a soft landing,” he added.
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