Dividend payers may not be top of mind for investors seeking high risk-adjusted returns, because the last decade hasn’t been kind to them. Over seven of the last 10 years through 2025, the MSCI USA High Dividend Yield Index underperformed the S&P 500. High-dividend payers are often seen as old, stodgy companies, like utilities or food manufacturers, with limited growth potential. As investors flocked to high-flying technology and AI-driven growth companies, dividend stocks seemed like antiquated investment options.
Recently, we’ve seen signs that “old economy” stocks with attractive dividend yields are reawakening, and in the first quarter of 2026, dividend payers outperformed the S&P 500. While it’s too soon to say whether these trends signal a turning point, a long-term view provides perspective. When widening the lens, we found that stocks in the top two quintiles by dividend yield delivered superior returns over the past four decades. In our view, the second quintile is particularly attractive on a risk-adjusted basis, as it avoids riskier companies with unsustainably high payout ratios. And our research suggests that this long-term return potential comes with a bonus: attractive performance in an inflationary world.
High-Dividend Payers: Inflation Protection and Higher Risk-Adjusted Return Potential
Second-quintile dividend payers are among the rarefied ranks of asset classes that have positive beta to inflation (Display, above), based on our multidecade analysis going back to 1971. Dividend payers are good investments in inflationary times because they tend to have sustainable and relatively predictable cash flows. These cash flows are the lifeblood of payouts to investors and offer a stream of steady income to support returns—if they can be maintained.
That’s the rub.
Finding the right dividend payers always requires a thoughtful, active approach, but especially today. Dividends reflect a company’s ability to generate consistently high free cash flows to distribute to shareholders. Today, investors need to verify that cost inflation and growth pressures won’t squeeze margins and threaten dividend payouts.
How to Find Resilient Business Models Among Dividend Payers
Some business models will be advantaged as inflation rises. We believe companies with pricing power will be able to raise prices without dampening demand. Companies undergoing positive change, or those with sustainable competitive advantages, will also be well positioned to maintain or grow their dividends.
Examples can be found in different parts of the market. For example, auto parts and home improvement retailers operate in low-elasticity, less-discretionary corners of the retail industry and have historically demonstrated an ability to pass on inflation and tariff-related increases. Agricultural equipment manufacturers also enjoy pricing power by helping drive higher productivity for farmers through precision agriculture innovations.
In our view, it can be challenging to source the right dividend stocks with passive approaches. Equity income benchmarks gravitate toward the highest dividend payers, without regard for their ability to sustain those payments. Some investors might lean into a value benchmark as a proxy for dividend-paying companies, but these include many energy and financials companies with high volatility and lower return potential in non-inflationary environments.
High-dividend payers are a great tool to help investors navigate the inflation uncertainty we’re facing today. They can help offset the pain from rising inflation without the long-term performance penalty that typically comes with commodities or energy. Equity income portfolios that target higher-yielding companies, backed by businesses that can withstand pressure in tougher times, offer a dividend-driven defensive strategy for today’s new and evolving investing challenges.
