Key Takeaways
- Dividend strategies are outperforming as investors turn toward income-heavier stocks like energy.
- The big AI-fueled rally in technology stocks (where dividend strategies have little exposure) has faded.
- The Dividend Leaders Index has outperformed other dividend strategies due to its high exposure to the energy sector.
After years of bringing up the rear, dividend strategies are paying off, thanks to investor interest broadening beyond technology into value-oriented sectors like energy and big pharmaceutical stocks, which have a heavy weighting in many dividend strategies. Over the last three months, the Morningstar Dividend Leaders Index is up more than 18.0%, while both the Morningstar US High Dividend Yield Index and Morningstar Dividend Composite Index are up roughly 10.5%. Meanwhile, the broader stock market as measured by the Morningstar US Market Index has risen less than 4% (all returns in this article are measured on a US dollar basis).
This marks a significant change in the landscape from the artificial-intelligence-led bull market rally of 2023, 2024, and portions of 2025. During the height of the AI stock frenzy, many dividend-paying stocks were left by the wayside in favor of tech stocks, which tend to plow most or all their earnings back into their companies or use them for buybacks. However, dividend strategies have had anything but a smooth path for their resurgence over the past year. Throughout 2025, as tech stocks stumbled, rallied, and stumbled again, dividend strategies outperformed, underperformed, and outperformed again.
Dan Lefkovitz, strategist for Morningstar Indexes, points to two reasons that dividend strategies and the Dividend Leaders Index in particular have been outperforming. The Dividend Leaders Index is a group of the 100 highest-yielding stocks with records of consistent dividend payments and the capacity to sustain their dividend. A shift in the relative performance among stock sectors has been a key factor for dividend strategies overall. “Since November, areas of the US stock market that have lagged, like value stocks and old economy sectors like energy and financial services, have made a strong comeback,” Lefkovitz explains.” This rotation has proved beneficial for dividend indexes, which tend to have a heavier exposure to value-oriented old economy sectors.
Lefkovitz attributes the concentration of the Dividend Leaders Index as a source of its strong performance relative to even other dividend indexes like the Composite Index and the High Dividend Yield Index. He says the heavy weighting of the Dividend Leaders Index to the big winners of the start of 2026, like Exxon Mobil XOM (up 25.7%) and Merck MRK (up 11.8%), played a key role in the Dividend Leaders Index’s outperformance. “When dividend stocks are doing well, it will outperform a [broader] index like the Dividend Composite Index,” he adds.
Tech Stocks Slide, Opening Path for Dividend Names
The waves of declines in technology stocks that have dominated the stock market since October are a key reason that dividend strategies have been outperforming. The technology sector is the cornerstone of the US Market Index, accounting for 32.9% of the benchmark. By contrast, technology represents 16.5% of the holdings in the Dividend Composite Index and just 0.8% of the Dividend Leaders Index. The Morningstar US Technology Index has fallen 1.46% so far this year, weighed down by the dramatic selloff of software stocks, which make up over a quarter of the index.
On an individual stock level, Microsoft MSFT has lagged—at 5.2%, it’s the third-largest holding in the US Market Index and has detracted 0.8 percentage points from its return. Meanwhile, Microsoft is a 4% holding in the Dividend Composite Index and detracted 0.6 points from its returns. The Dividend Leaders Index does not hold the stock. Of the five largest detractors in the US Market Index, Microsoft, Nvidia NVDA, and Apple APPL are also in the Dividend Composite Index, while none are in the Dividend Leaders Index.
Meanwhile, the energy sector, which makes up 27.4% of the Dividend Leaders Index and 9.0% of the Dividend Composite Index, is the top-performing sector so far this year, up 18.0%. It has contributed 4.6 percentage points to the Dividend Leaders Index’s performance. A key driver of this performance has been recent geopolitical developments. Joshua Aguilar, director of equity research at Morningstar, explains that it’s “mainly due to the capture of Maduro in Venezuela and the market ascribing long-term benefits.” Aguilar highlighted names like oil field service companies like SLB SLB and refiners like Valero Energy VLO as beneficiaries of investments in Venezuela. He also noted: “Oil has risen due to US-Iran tensions and the potential loss of Iran’s related oil supply/potential for the closure of the Strait of Hormuz.”
Aguilar points to the weather as a driver of recent performance in the gas industry: “I think gas prices have mostly benefited from an unusually cold winter. Severe weather caused ‘freeze offs’ that reduced dry gas production in the Permian.” Exxon was a standout performer, contributing 2.6 percentage points to the Dividend Leaders Index’s performance. At 11.2%, it’s the largest holding in the index.
Lefkovitz also highlighted the healthcare sector, which makes 17.1% of the Dividend Leaders Index: “If you look at Merck and Bristol Myers Squibb, which are among the top 10 constituents of the Dividend Leaders Index, they had a very strong return since November.” Merck, which holds a 5.4% weight in the Dividend Leaders Index, contributed 0.7 percentage points to its performance. Bristol-Myers Squibb BMY, which holds a 3.2% weight in the index, contributed 0.5 points.
