Key Takeaways on Recent Dividend Stock Performance
- Dividend stock strategies underperformed the broader stock market in 2024.
- High-yielding sectors, such as financial services, utilities, and energy, lagged low-yielding sectors like technology and communication services.
- 2024’s big winners, such as Nvidia NVDIA, Apple AAPL, and Amazon AMZN, don’t yield enough to be held in most dividend indexes.
- Many companies (especially in tech) favor share buybacks over dividends to return cash to shareholders.
While the stock market finished its second consecutive year of gains north of 20%, dividend strategies have struggled to keep up. In 2024, the Morningstar Dividend Composite Index—a broad measure of dividend stock performance—rose 15.7%. That’s roughly 8 percentage points worse than the 24.1% gain on the broader Morningstar US Market Index.
“The main reason [dividend strategies] underperformed was simple,” says Dan Lefkovitz, a strategist for Morningstar Indexes. “They are below market exposure to technology. Technology was not the best-performing sector, but close, and it’s a big, big chunk of the market now.”
Meanwhile, the Morningstar US High Dividend Yield Index, which focuses on the higher-yielding half of the US dividend-paying market, faired slightly better, gaining 16.9%. The Morningstar Dividend Leaders Index—a collection of the 100 highest-yielding stocks with a consistent history of paying their dividends plus a demonstrated ability to sustain their dividends—was the best-performing dividend strategy in 2024, ending the year up 17.5%.
Most Dividend-Rich Sectors Lag in 2024
Understanding why dividend strategies lagged in 2024 requires lifting the hood on what drove the stock market’s overall performance. The top-performing sectors were communication services, which rose 39.1%, and technology, which climbed 36.2%. Tech stocks specifically (which hold a whopping 31% weight in the US Market Index) contributed the most to broad market gains, adding 10.2 of the 24.1 percentage points gained in 2024, according to Morningstar Direct.
In contrast, the tech sector accounts for just 14% of the US High Dividend Yield Index and contributed 4.5 percentage points to its 2024 gain—less than half of its impact on the broader market.
Meanwhile, dividend-rich sectors like financial services, utilities, and energy lagged. However, financial services stocks, which gained 31.2% and hold a 19% weight in the high dividend index, and utilities stocks, which rose 26.8%, still had good years on absolute terms.
“Financial services had a really strong year,” Lefkovitz says. “There was a big post-election surge and anticipation for lighter regulation. There’s also yield curve steepening, which is good for banks because it increases that spread between the deposit rates and the lending rates.”
On the utilities side, Lefkovitz explains that power-hungry AI technologies and cryptocurrency mining have ramped up electricity demand. However, he notes that for dividend indexes, “overweight exposures in those two sectors were not enough to counteract the underweight exposure to technology.”
Low-Yielding Names Drove the Market in 2024
Among the individual stocks that drove the market in 2024, the three largest contributors—Nvidia, Apple, and Amazon—are not included in the High Dividend Index. These three stocks hold a combined weight of 14% in the US market index and contributed 7.8 percentage points to its 2024 return.
Despite increasing its dividend payout by 150% in 2024, Nvidia only pays a 0.03% yield, equivalent to $0.04 per share annually. Apple’s dividend is slightly higher, with a 0.41% yield and an annual dividend of $1 per share. Amazon does not pay a dividend.
Broadcom AVGO, Meta Platforms META, Tesla TSLA, Microsoft MSFT, and Alphabet GOOGL/GOOG round out the top eight contributors to the US market in 2024. Of those, only Broadcom pays a large enough dividend to be included in the High Dividend Index. “It was just hard to keep up when you don’t own some of those top performers,” Lefkovitz says.
A Focus on Share Repurchases, Not Dividend Payouts
Lefkovitz explains that instead of paying hefty dividends, these big tech companies (along with many others) return cash to shareholders through share repurchases. “There’s an expression that dividends are like marriage and share buybacks are like dating. They’re more flexible. Companies can conduct them opportunistically when they have excess cash on hand or when their shares are undervalued. Whereas the dividend is a commitment, and if you withdraw it or lower it, it’s going to be punished by the market.”
The leading contributors to the High Dividend Index were Broadcom, which added 3.4 percentage points, JPMorgan Chase JPM, which added 1.3 points, and Walmart WMT, which added 1.0.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.
