Investors may not get as many rate cuts in 2025 as they’d hoped, but there’s still plenty of strong momentum for dividend stocks. The Fed last week projected two interest rate cuts in the new year, down from the four rate cuts policymakers forecast in September. A falling interest rate environment generally bodes well for dividend stocks, as they can more easily compete with the yields on risk-free Treasuries. “Money market rates are also starting to fall on the back of the Fed rate cuts,” said Charles Gaffney, managing director at Morgan Stanley Investment Management and portfolio manager of the Eaton Vance Dividend Construction Fund (EIUTX). In fact, the current seven-day annualized return for the Crane 100 Money Fund Index is 4.27%, compared with 5.13% at the end of July. Money market fund assets totaled $6.81 trillion in the six days ended Dec. 24, according to the Investment Company Institute. Lower interest rates aren’t the only development that could boost dividend payers in 2025. President-elect Donald Trump has called for cutting the corporate tax rate to 15% from the current 21%. Generally speaking, lower tax rates increase a company’s cash flow, which in turn spurs dividends, buybacks and M&A activity, Gaffney added. A Busy Year for Dividend Payers Dividend-paying stocks tend to be sleeper companies whose days of huge growth are behind them, but 2024 proves to be different as some of the world’s biggest tech companies start paying dividends. Tech giants like Meta Platforms, Salesforce and Alphabet are paying dividends for the first time this year. The amounts of these new dividends are small — Meta, for example, is offering 50 cents per share, giving the stock a dividend yield of just 0.3% — but they offer long-term shareholders a combination of price appreciation and the prospect of increased dividends. These names also reward investors who reinvest their dividends, leading to compound growth. “This is a big shift in the market,” said Cheryl Frank, portfolio manager of the Capital Group Conservative Equity ETF (CGCV). “These new dividend payers are very good companies with small dividends, but they are just starting to hit the ground running. Journey.” Utilities also have a great year ahead in 2024: Although the sector has lagged the S&P 500 (up about 21% this year, compared with the broader index’s 26% gain), investors are optimistic about these companies. Center for excitement about the role data will play in driving artificial intelligence. Constellation Energy announced that it would restart the Three Mile Island nuclear power plant in Pennsylvania in 2028 to provide power to Microsoft. Its stock price nearly doubled within a year. Vistra shares are set to rise more than 270% by 2024, driven by the company’s forward-thinking role in providing nuclear power for the artificial intelligence revolution. Constellation and Vistra both have dividend yields of 0.6%. “Our power demand hasn’t grown in 20 years because we offshored and made everything more efficient,” Frank said. “We’re now in a world where we’re talking about electric vehicles, and as we build fleets of electric vehicles, demand continues to increase, and the boom in artificial intelligence is also energy-intensive.” She added that utilities, consumer goods companies and health care providers These are some industries where “you can still find companies that are reasonably valued on a relative basis.” Looking ahead to 2025, Morgan Stanley’s Gaffney focused on chip stock Broadcom, whose shares have more than doubled in 2024 and soared more than 50% in December alone. The stock’s dividend yield is 1%. EIUTX owns Broadcom, which was the fund’s second-largest holding as of Oct. 31. Between $60 billion and $90 billion “This looks like a strong fundamental case that the business will continue to outperform over the next several years,” Gaffney said. He added that Tan’s guidance indicated “opportunity and growth.” The runway is huge and strong. Portfolio managers also like EUTX’s other holding, EOG Resources, which has a dividend yield of 3.2%, which is flat for the year. That’s OK.” He pointed out that the industry has generally not participated in this year’s rally. Still, EOG is “a very well-managed company,” he said. “They operate the business with a 3% dividend yield, and that dividend yield has been growing at a high single-digit rate.” The company’s operations also generate the capital needed to provide special dividends, which are non-recurring dividends outside of the regular dividend cycle. Payment for sex. “(EOG) yields 3%, and as it continues to grow and produce excellent results, it’s able to provide additional special dividends, giving you a dividend yield closer to 4%,” Gaffney said.
