Are you rattled by the threat of tariffs, inflation, political uncertainty and a slowing economy? Then it may be time to add some classic defensive plays favored by conservative investors to your portfolio—dividend-paying stocks.
This type of stock, typically from mature companies with stable earnings and steady but modest growth, has underperformed the broad market in recent years. But investment expert John Buckingham, principal and portfolio manager at Kovitz Wealth Management, thinks market dynamics are shifting and dividend stocks are poised for a comeback. So far in 2025, the Morningstar Dividend Yield Focus Index is up 4.87% versus 1.74% for the S&P 500 Index.* Buckingham believes dividend stocks can offer ballast and superior returns in today’s volatile environment. Here’s why he thinks dividend-payers are a good long-term investment now…
They offer better relative value. High-priced tech stocks have faltered and no longer look unstoppable. Dividend stocks can be about 35% cheaper than the overall market.
Stock dividends are increasingly attractive compared to bonds for income seekers. The Federal Reserve is in the midst of an easing cycle and expects to keep cutting interest rates later this year. As the rates on bonds fall, dividend payouts have more appeal for investors seeking yield.
They offer better downside protection. If economic conditions deteriorate and we experience a recession, income from dividend stocks will keep rolling in and dividend-payers will hold up better than the rest of the market.
They are a hedge against inflation. The yield on your bond holdings never changes. But during periods of elevated inflation, dividend-paying companies tend to raise prices and use the extra revenue to regularly hike dividends. Since the 1930s, dividends have accounted for nearly 40% of stock market returns…but 54% during high-inflation decades.
Bottom Line Personal asked Buckingham what he looks for in a dividend stock and his favorites right now…
HOW TO PICK GREAT DIVIDEND STOCKS
In turbulent markets, I like to revisit Warren Buffett’s advice to investors—be greedy when others are fearful—but with a slight modification…
Be a greedy contrarian. Scoop up high-quality dividend-paying stocks when they are deeply undervalued. What I look for: Companies that are leaders in their industry with sustainable competitive advantages, solid balance sheets, manageable debt, strong free cash flow even in rough economic times and predictable revenues. These companies should pay a dividend yield substantially higher than that of the S&P 500 (recently just shy of 1.3%). And the stocks should be out of favor and cheap—I want to buy at low valuations relative to companies’ own long-term histories and/or at a discount to their future growth estimates.
Other strategies I’m using now…
Look at small- and mid-cap dividend-payers. I suspect tariffs could cause a rotation to US-sourced goods. That shift is likely to make a big difference for small companies, which tend to get most of their profits from domestic business.
Hunt for bargains outside traditional dividend-stock areas, such as utilities. That sector already had a strong run-up last year. Instead, pay attention to unloved sectors, including…
Energy. Energy companies will benefit from a supportive regulatory regime. Many oil and gas firms offer a combination of strong upfront yields and a more balanced approach to capital allocation.
Health care. Many Big Pharma stocks are inexpensive and can withstand even the heaviest of government-reform efforts.
International stocks. I’m finding relative value in dividend-payers overseas. The Morningstar Global Markets ex-US High Dividend Yield Index is up nearly 17% this year.
BEST STOCKS TO INVEST IN NOW
These stocks meet all the above criteria and have a recent average yield of 3.54%. They can work together as the income-producing part of a diversified portfolio…or you could choose some of them individually to increase stability and improve your income.
Allianz (ALIZY). Some US investors may be unfamiliar with this German financial-services monolith. It is the world’s largest property-and-casualty insurer with more than 100 million customers in almost 70 countries. Its asset-management division, including the bond investment firm PIMCO, oversees more than $2 trillion. Operating profit is expected to grow by 4% this year, while the dividend is likely to rise 12%. The company spent more than $1.5 billion on share buybacks last year and has announced a new $2 billion commitment for 2025. Despite all this, Allianz still trades at a discount to many of its US counterparts. Recent yield: 4.24%. Recent share price: 40.21.
American Eagle Outfitters (AEO). The clothing retailer focuses on teen and young adult shoppers, mainly through its namesake American Eagle brand and its fast-growing Aerie brand, which offer intimates and activewear for women. The company operates more than 1,100 stores in the US, Canada and Mexico, and it ships merchandise to 80 countries via its websites. The small-cap stock sports a low valuation with a price-to-earnings ratio below 10 versus 28 for the S&P 500. American Eagle should be able to weather the tariff storms because of its ability to source products from a variety of manufacturers. Recent yield: 4.2%. Recent share price: $10.26.
Bristol-Myers Squibb (BMY). Shares of this leading drugmaker, which specializes in treatments for cardiovascular, cancer and immune disorders, have lagged the broad market due to concerns about patent expirations and US government price controls. But the firm still generates $40 billion in annual revenue from key brands such as Opdivo (used to treat melanoma and kidney cancer), Eliquis (blood clots) and Breyanzi (non-Hodgkin lymphoma). In addition, Bristol-Myers Squibb has a robust pipeline of new treatments in late-stage clinical trials and has spent more than $20 billion acquiring innovative drug firms specializing in oncology and neurology. Recent yield: 4.1%. Recent share price: $47.95.
Digital Realty Trust (DLR) owns and leases technology-related real estate. It operates more than 300 data centers in major metropolitan markets, mostly in the US and England. A data center is a specially designed facility with advanced electrical, environmental and security systems to house servers and networking equipment to store and access online data. Digital Realty’s stock tumbled in early 2025 because of worries that more efficient AI software and hardware will mean less demand for the company’s data centers. But that overlooks the company’s many strengths including steady income streams buoyed by long-term lease agreements…a backlog of $800 million in booked but not yet billed leases…and surging demand for data center capacity beyond the AI sector from a range of customers, including large companies moving their businesses online, cloud vendors, digital-media firms and Internet service providers. Recent yield: 2.77%. Recent share price: $176.00.
EOG Resources (EOG) is one of the largest and most diversified independent oil-and-gas production companies in the US. It has net proven reserves of nearly five billion barrels of oil across major shale sites including the Permian and Eagle basins in New Mexico/Texas and the Delaware Basin. EOG’s technical proficiency and ability to keep production costs low has generated enormous free cash flow and rising dividends. The stock still trades cheaply, and management is targeting 6% growth in total production growth for 2025. Recent yield: 3.4%. Recent share price: $110.77.
Hormel Foods (HRL) manufactures some of the most popular meat-focused food products in the US, including Spam, Dinty Moore, Jennie-O, Applegate and Hormel Natural Choice. The company did $12 billion in sales last year with its brands holding the number-one or number-two market share in 40 different categories. While earnings growth is modest, cash flow has been reliable enough for Hormel to raise its dividend every single year since 1966. Post-pandemic, Hormel’s stock price has struggled because the company had a difficult time passing inflationary input costs on to consumers. Potential catalysts: Hormel Foods acquired the Planters snack nut portfolio from Kraft Heinz, the largest acquisition in Hormel’s history. It plans to invigorate the brand through innovative marketing and new offerings. Recent yield: 3.73%. Recent share price: $30.70.
The Mosaic Co (MOS). Fertilizer application is an essential part of raising crop yields and food production. Mosaic is one of the largest fertilizer producers in the world with phosphate rock mines in Florida and Peru and potash mines in Canada and New Mexico. The company also operates a major fertilizer-distribution system in Brazil. Shares slid to a multiyear low after a challenging 2024 marked by weak potash prices and low agricultural demand in Brazil. But prices are expected to rise in 2025 as demand grows and production cuts from major producers in Belarus and Russia take hold. Long term, potash prices are likely to stay elevated as China and India work to optimize their agricultural production. Phosphate demand from batteries used in electric vehicles should continue to increase. Recent yield: 2.31%. Recent share price: $36.82.
*All performance figures are from Morningstar, Inc., as of June 4, 2025. For current pricing, go to Morningstar.com. Bottom Line Personal recommendations are meant for five- and 10-year horizons—not for immediate profits.
