Dividend stocks still fit modern portfolios

Portfolio managers at a Morningstar conference in Chicago argued that dividend-paying stocks remain a useful element in modern portfolios because they provide equity upside while helping protect against volatility and inflation. The panel was moderated by Morningstar analyst Todd Trubey and included Mike Barclay of Columbia Threadneedle, Ramona Persaud of Fidelity and Andrew Brandon of JPMorgan Asset Management.

Panelists said a concentration of investor attention in passive funds and a small group of large technology companies, along with long-term declines in dividend yields and a rise in share buybacks, have made income strategies less fashionable in recent years. They described those trends as part of the backdrop for the discussion rather than reasons to abandon dividend approaches.

Mike Barclay told the group that firms continue to include dividend strategies in client allocations despite changing market cycles, adding, “Cycles come and go.” Ramona Persaud compared dividend-paying equities to “shock absorbers,” saying they can smooth returns when other holdings are more volatile. Andrew Brandon described dividend strategies as delivering “through-the-cycle returns,” emphasizing the need for performance across market phases.

Panelists discussed changes in sector contributions to dividend income. Utilities historically attracted income investors, but their growing ties to data-center power and related technology demand have reduced their defensive appeal. Barclay noted that some consumer-staple names are less attractive because brand loyalty has weakened in parts of the category. Persaud pointed to opportunities outside the U.S., where pension-fund ownership of equities has created a greater balance between growth and income. Brandon highlighted health care dividend payers such as UnitedHealthcare, CVS, AbbVie and Abbott as companies that continue to grow while returning cash to shareholders.

The managers said selecting dividend stocks requires analysis beyond headline yields. Barclay said the starting point is a company’s balance sheet and how it uses cash flow, which determine dividend quality and sustainability. Persaud cautioned against relying solely on quantitative screens, noting that some quant strategies concentrated in financials before the 2008 crisis. The panel contrasted dividends and buybacks, noting that buybacks are now a common capital-return tool while dividends provide transparent income and potential downside support.

Panelists also cited a long-term decline in aggregate U.S. dividend yields driven by rising share prices, shifts in corporate capital allocation and the growth of buybacks. They said dividend-focused funds can address income needs, inflation protection and steadier returns when managers apply rigorous fundamental research rather than relying only on yield metrics.