Here’s Where to Find the Best Dividend Stocks Now

Investors looking for growth can check out Welltower, a senior housing REIT that stands to benefit from the wave of retiring baby boomers.  (Courtesy Welltower Inc.)

Key Points

• The Vanguard High Dividend Yield ETF is up 13.5% this year, lagging the S&P 500’s 17.6% gain.
• Five stock sectors constitute two-thirds of dividends but less than 20% of the S&P 500’s market cap.
• Utilities and real estate sectors may perform well in 2026, with utilities benefiting from rising electricity prices and real estate from falling interest rates.

Dividends are on the ropes—but investors might not want to give up just yet.

Investors love dividend stocks for regularly providing quarterly income, which makes retirement planning easier. What’s more, dividend investors have historically been able to have their cake and eat it too. Much academic research shows stocks that pay dividends tend to outperform those that don’t in the long run—a dynamic investors have theorized was tied to the discipline required to make quarterly payouts.

Lately, however, the magic of dividends hasn’t worked. So far this year the Vanguard High Dividend Yield ETF , a popular index tracking dividend option, is up 13.5% compared with 17.6% for the S&P 500. Over the past decade, the ETF has lagged behind the broad market by more than three percentage points a year.

Of course the reason is no secret: In a market dominated by AI, many dividend payers in traditional industries simply can’t keep up.

“Dividend-focused investing used to be an effective, risk-averse way to largely match S&P 500 total returns,” wrote DataTrek Research co-founder Nicholas Colas in a note Tuesday. “But the style’s underweight to tech and overweight to fundamentally challenged industries like consumer staples threatens to make it a structural underperformer in all but the deepest of bear markets.”

DataTrek’s research highlights the problem. Five stock sectors—consumer staples, utilities, industrials, materials, and real estate—payout roughly two-thirds of all dividends, but make up less than 20% of the S&P 500’s market capitalization. By contrast, technology and communications make up more than 45% of the index’s market cap, but pay less than 10% of its dividends.

But investors may not want to give up on dividends just yet. Stocks in dividend-paying sectors may thrive in 2026, especially defensive ones that tend to hold up well when the economy lags behind. While the S&P 500 remains close to its late October record high, policymakers remain worried about persistent inflation and a sluggish labor market.

Look at utilities, which account for nearly 15% of dividends but only 2% of the S&P 500’s market cap. The normally staid sector has been benefiting from a big jump in electricity prices, which have risen much faster than inflation in recent years. While that is partly due to AI, it also reflects increased U.S. manufacturing and underinvestment in infrastructure. The Utilities Select Sector SPDR exchange-traded fund is one way to target the sector; another is an active fund like Gabelli Utilities Fund.

Real estate is another sector that may be worth a look. Real estate investment trusts were hit hard when the Federal Reserve started hiking interest rates in 2022, pushing up mortgage rates. Now, rates are slowly coming down and markets for premium office space in key markets, such as New York City and Boston, have come back. The Real Estate Select Sector SPDR is an index fund focused on REITs.

Investors looking for growth stories can also check out Brixmor Property Group, a shopping center REIT recently highlighted by Goldman Sachs, or Welltower, a senior housing REIT that stands to benefit from the wave of retiring baby boomers.

Write to Ian Salisbury at ian.salisbury@barrons.com