Why dividend stocks might make a comeback in 2025

Frederick Schultz, Senior Director of Equity Research – Ameriprise Financial
Feb. 14, 2025
Businessman on his tablet, reviewing investments.

In 2024, the presidential election, interest rates, economic uncertainty and waning consumer confidence created caution for many corporate leaders, resulting in restrained growth for dividend-paying stocks.

Despite this more challenging external environment, we believe there were notable green shoots planted in 2024 that could lead to improving shareholder yield (the amount of money shareholders receive from companies through dividends, stock repurchases and net debt reduction) in 2025.

Here are three key themes that could set the stage for a strong year for shareholder yield and make owning dividend-paying stocks a more attractive option for investors.

1. More Nasdaq-100 companies are paying out dividends

The Nasdaq-100 Index turns 40 this year, a major milestone that’s catching the attention of investors. While the index still represents some of the biggest and most innovative companies listed in the U.S., their business models are maturing. Mature businesses tend to generate significant amounts of free cash flow, which can be used to pay (and grow) dividends and buy back stock.

To that end, in the first half of 2024, several large cap Nasdaq bellwethers declared dividends for the first time in their corporate history. These dividend declarations were so vast, they accounted for over half of all the dividends declared among U.S.-listed stocks during the first six months of the year.

Ten years ago, Nasdaq-100 Index companies were just beginning to scratch the surface of making the list of the top 15 global dividend payers, according to our data. At the end of 2024, three of the top 15 spots, including two of the top three positions, were held by Nasdaq-100 Index companies. We expect Nasdaq names to keep “punching their way” up the standings.

2. Pent-up demand and lower taxes could drive S&P 500 dividend growth

The S&P 500 Index is considered among the most important benchmarks and collections of stocks for global equity markets. Dividend growth and share repurchases over the past decade have become hallmarks for the S&P 500, which is home to many global dividend payers. Dividend growth slowed dramatically in the last quarter of 2024, which we attribute to the election and uncertainty over new policy changes. With this behind us, we believe there is pent-up dividend growth demand coming from the S&P 500. For 2025, our data points to approximately 8% potential dividend growth this year for the S&P 500, following 6% in 2024 and 5% in 2023.

Additionally, the passage of the Tax Cuts and Jobs Act (TCJA) in 2017 also positively impacted dividends and buybacks in 2018. Specifically, the TCJA lowered the corporate federal tax rate from 35% to 21% and resulted in buybacks and dividends pushing to multi-year highs the following year. Corporate tax reduction is on the table again as the TCJA expires in 2025. While the reported reduction from 21% to 15% is not as large as the measure in 2017, it could represent an upside to our S&P 500 shareholder yield case once resolved.

3. Improving levels of free cash flow may lead to increased board optimism

Free cash flow is the amount of cash a company has left over after it pays all its bills. When it comes to dividend growth, free cash flow is important because it’s a key factor in capital allocation choices made by a company’s board of directors, who ultimately decide whether to use excess cash to pay out (and grow) dividends and buy back stock.

Overall, we anticipate an upward path for free cash flow growth through 2027. As such, we expect the boards of companies with high levels of free cash flow to be generally more receptive to stock buyback programs and increasing dividend payouts in 2025.

Mature businesses (i.e., companies beyond the early cycle and growth stages) and businesses with significant economies of scale or less capital-intensive operating models typically generate high levels of free cash flow. For example, firms in sectors such as communication services, consumer staples and information technology often produce elevated levels of free cash flow.

Bottom line

In 2025, investors may want to consider rotating out of income-producing products and into equities with the potential for capital appreciation, dividend growth and common stock repurchases. With interest rates potentially headed lower over the next few years, we believe it could be a good time to consider investing in stocks with shareholder yield upside.

If you’d like to discuss how dividend-paying stocks may help you reach your financial goals, connect with your Ameriprise financial advisor. They can provide perspective on how these assets may or may not align with your portfolio’s diversification targets, risk tolerance and time horizon.

The views expressed are as of the date given, may change as market or other conditions change, and may differ from views expressed by other Ameriprise Financial associates or affiliates. Actual investments or investment decisions made by Ameriprise Financial and its affiliates, whether for its own account or on behalf of clients, will not necessarily reflect the views expressed. This information is not intended to provide investment advice and does not account for individual investor circumstances.
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An index is a statistical composite that is not managed. It is not possible to invest directly in an index.
The Nasdaq 100 Index is a collection of the 100 largest, most actively traded companies listed on the Nasdaq stock exchange. The index includes companies from diverse industries like manufacturing, technology, healthcare, and others. The index excludes those in the financial sector, like commercial and investment banks.
The S&P 500 Index is a basket of 500 stocks that are considered to be widely held. The S&P 500 index is weighted by market value (shares outstanding times share price), and its performance is thought to be representative of the stock market as a whole. The S&P 500 index was created in 1957 although it has been extrapolated backwards to several decades earlier for performance comparison purposes. This index provides a broad snapshot of the overall US equity market. Over 70% of all US equity value is tracked by the S&P 500. Inclusion in the index is determined by Standard & Poor’s and is based upon their market size, liquidity, and sector.
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