John Rockefeller was a glum guy. He didn't drink alcohol, dance, or play cards. But there was one thing that put a smile on his face. "Do you know the only thing that gives me pleasure? It's to see my dividends coming in," he was quoted as saying back in 1908.
By that measure, Rockefeller would be positively distraught today. The S&P 500's dividend yield hit a record low of 1.07% for the second quarter. For investors who like to clip their coupons, there isn't much left to clip.
Measured on a daily basis, the yield is currently at 1.09%, just above its record daily low of 1.01%, which it hit on Sept. 1, 2000. The yield's decline that year ended up being a red flag. Within six months, the index had lost 17% of its value in the dot-com bust.
Today, the market looks healthier than it did in 2000, but many of the same dynamics are in place. Tech stocks with low or nonexistent dividends are leading the market, while dividend-paying stocks have been left behind.
Some longtime dividend-payers have also gotten stingier with their payouts. Target, for instance, hiked its dividend by 32% in 2021 and 20% in 2022. This year and last, it increased the dividend by just 1.8%. S&P 500 companies paid out the lowest dividends on record as a percentage of earnings in the second quarter, returning just 24.7% to investors, according to Sam Stovall, chief investment strategist at CFRA Research.
When times are good, like they have been over the past four years, it's easy to overlook the dividend yield. The S&P 500 has enjoyed double-digit percentage gains every year since 2023, so it hasn't mattered much to investors whether they get a 1% or 3% dividend yield on top of that.
But when the market goes through rockier stretches, or stocks are just doing OK, dividends are often the one bright spot in a portfolio. Historically, dividends have contributed 31% of the S&P 500's total return, according to S&P Dow Jones Indices, based on data from 1926 through February 2025. In the first decade of the 2000s, which ended with a fizzle, dividends contributed 68% of the total return.
By comparison, dividends barely make a blip in total returns today. In 2025, the market rose 16.4%. Adding dividends brought the total return to 17.9%.
One of the market's foremost dividend proponents now says investors can no longer rely on dividends alone as ballast for their portfolios. Jeremy Siegel, a professor emeritus at Wharton and the chief economist at investment firm WisdomTree Investments, had found that reinvested dividends accounted for 97% of real return for stocks between 1871 and 2003. Now he thinks investors need to take a wider view.
"Basing a strategy on dividends alone today is too narrow. That's why I recommend looking at shareholder return, which is buybacks plus dividends," he said in an interview. Before the 1980s, buybacks were rare, because they were viewed as a kind of market manipulation. Companies spent 10 times as much on dividends as buybacks in 1970, according to Morgan Stanley. But a rule change in 1982 offered companies legal protection for their buybacks, and the practice took off. By 2004, they were spending 1.3 times as much on buybacks as on dividends. Since then, companies have consistently spent more on buybacks than on dividends, excluding during recessions, Siegel found. This year, companies in the S&P 500 are set to pay out $827 billion in dividends, according to S&P Global Market Intelligence. Goldman Sachs estimates they'll spend $1.4 trillion on buybacks.
Siegel says companies are responding to investor demands by shifting their shareholder return strategies toward buybacks, which are more tax-efficient for many investors. Investors have to pay taxes on their dividends, even if the dividends are simply reinvested back into the stock or index. And the wealthiest investors, who hold the majority of stocks, are taxed at higher rates on certain dividends than on their capital gains from selling stocks. For those in the top income bracket, nonqualified dividends -- payouts on stocks that were held for less than 60 days -- are taxed as income at levels as high as 37%. Capital-gains rates and taxes on qualified dividends are capped at 20%. Siegel has advocated for tax policies that make dividends more appealing by eliminating taxes on dividends that are reinvested. But that proposal hasn't been adopted.
While buybacks may have tax advantages, they are seen as less dependable. They come and go based on the whims of management, unlike dividends, which companies will generally maintain unless something is going terribly wrong.
"While buybacks and dividends are arguably interchangeable, management teams commonly view buybacks as discretionary and dividends as sacrosanct," writes Michael Mauboussin of Morgan Stanley.
That makes dividends a particularly good sign of a company's health at a time when companies have gotten better at promoting metrics that can hide the underlying strength of their numbers. Separately, the discretionary nature of buybacks means there is a risk that companies increase their buyback programs at exactly the wrong times, increasing purchases when their shares are pricey and reducing them when they are undervalued. A 2011 study by McKinsey found that most companies ramped up repurchases when shares were on the way up, and cut back when the share price dropped.
Beyond the rise of buybacks, another reason that dividends have fallen out of favor is that companies are using more of their cash to grow. Exhibit A in this trend are the "hyperscaler" tech companies like Amazon.com, which have been spending so much to build out artificial-intelligence capabilities that there's often little money left for other priorities. Amazon recorded negative free cash flow in its latest quarter, along with other big tech names like Alphabet and Oracle. "Capital spending in support of AI is being rewarded more than a company raising its dividend," says Todd Rosenbluth, head of research at index provider VettaFi.
The good news for yield-seeking investors is that bonds are now a much more attractive source of income, with 10-year U.S. Treasury notes now yielding 5.2% -- a full percentage point more than at the start of the year.
Meanwhile, financial innovations are offering new ways to derive income from equities. From the start of 2026 through September, investors poured $52 billion into derivative income exchange-traded funds such as the JPMorgan Equity Premium Income ETF, which try to enhance income gains from stock ownership by using options contracts.
That eclipses the $46 billion of net inflows into dividend ETFs, according to VettaFi. Among those traditional ETFs, the most popular is Vanguard Dividend Appreciation, which owns companies that have consistently raised their dividends. But its yield remains measly, at just 1.5%. An alternative is the Schwab US Dividend Equity ETF, which yields 3.3%.
Todd Trubey, a senior analyst for equity strategies at Morningstar, likes the Vanguard High Dividend Yield ETF. Its 2.4% yield isn't spectacular, but the fund's 0.04% expense ratio is hard to beat. A more expensive but higher-yielding option that he likes is the BNY Mellon Enhanced Dividend and Income ETF, which holds stocks and preferred shares. It yields 7.5%, with a 0.5% expense ratio.
It's also worth looking overseas, where many companies continue to pay fat dividends. The iShares International Select Dividend ETF yields 4.8%, and charges 0.5% in expenses. It holds a mix of energy, tobacco, and telecom stocks, among others.
Trubey says that retirees who like to live off quarterly payouts find the dearth of dividends particularly tricky. "At the end of the day, you don't need dividends," he says. "You also don't need the yield from bonds in order to retire. You can always just sell a little bit of your portfolio now and again. It's just that people don't like to do that. We're used to getting paychecks, and dividends correspond to those."
The market environment has clearly changed. In order to adjust, investors may have to think a little less like employees, and a little more like owners.
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