Key Takeaways
- Dividend strategies have outperformed the broader stock market in 2025.
- In contrast with 2024, high-yielding sectors like utilities and financial services have led returns, while the technology sector has stumbled.
- The Dividend Leaders Index has outpaced other dividend strategies due to its high concentration in some of this year’s big winners.
After lagging the market in seven out of the last eight years, the Morningstar Dividend Leaders Index has rebounded in 2025. It has climbed 6.5% in the year to date, more than double the 3.0% gain on the Morningstar US Market Index, demonstrating how dividend strategies can boost returns.
The Dividend Leaders Index—a collection of the 100 highest-yielding stocks with a consistent history of paying their dividends and a demonstrated ability to sustain these payouts—surged in the first quarter, rising 9.0% while the overall market fell 4.6%. Since then, it has given back some of those gains, slipping 2.3% so far this quarter while the market has climbed 8.0%.
Meanwhile the Morningstar Dividend Composite Index—a broad measure of dividend stock performance—is up 4.1% in the year to date, while the Morningstar US High Dividend Yield Index—which focuses on the higher-yielding half of the US dividend-paying market—is up 4.0%. This contrasts with 2024, in which the Dividend Leaders Index, the Dividend Composite Index, and the High Dividend Yield Index all trailed the market.
Dan Lefkovitz, a strategist for Morningstar Indexes, points to two forces driving the outperformance.
The first, which applies to dividend strategies across the board, is a shift in sector return trends. “In contrast to the past couple years, the technology sector is not leading, and several members of the Magnificent Seven have stumbled,” Lefkovitz says. “Meanwhile, more defensive, dividend-rich areas of the market have done well.”
The second, which helps explain why the Dividend Leaders Index has outpaced other dividend indexes, is its structure. It is “a concentrated index of high-yielding stocks, heavily weighted toward top constituents, and it has had some big winners this year,” Lefkovitz explains.
Tech Stocks Have Stumbled in 2025
The technology sector dominates the US Market Index, accounting for 30.9%—more than twice the weight of the next largest sector, financial services, at 13.9%. By comparison, tech represents 17.2% of the Dividend Composite Index and just 4.6% of the Dividend Leaders Index. With tech ranking as the third-worst-performing sector this year, up just 2.6%, the US Market Index hasn’t enjoyed the same lift from tech as in the past.
The utilities sector meanwhile, which makes up 6.1% of the Dividend Composite Index, 13.1% of the Dividend Leaders Index, and just 2.4% of the US Market Index, is the top-performer so far this year, climbing 10.7%. Consumer defensive and financial services—also heavily weighted in the dividend indexes—have both posted gains near 5% in the year to date.
Drilling down into individual names, Apple AAPL has been the biggest drag on the stock market in 2025. It makes up 6.0% of the US Market Index and has detracted 1.4 percentage points from its return. In contrast, Apple holds just a 2.5% weight in the Dividend Composite Index, where it has detracted 0.6 points. The Dividend Leaders Index doesn’t hold Apple at all.
Out of the six largest detractors in the US Market Index, only Apple and UnitedHealth UNH are in the Dividend Composite Index, while none are in the Dividend Leaders Index.
Small Number of Names Have a Large Impact
Given that the Dividend Leaders Index is a collection of just 100 stocks, outperformance or underperformance from top constituents can have a big impact on its overall return. Each of the five largest holdings—Verizon Communications CZ, AbbVie ABBV, Chevron CVX, Philip Morris PM, and Pfizer PFE—carries a weight above 6%, contributing to a total of 53% held in the top 10 stocks. Lefkovitz notes that several top holdings—Philip Morris (up 53.4%), IBM IBM (up 29.7%), and CVS Health CVS (up 53.8%)—have been standout performers in 2025.
“[The Dividend Leaders Index’s] outperformance relative to the broad universe of high dividend payers is more about the individual securities in the index as opposed to sector or style biases,” Lefkovitz explains.
Of the 6.5 percentage points gained by the Dividend Leaders Index in 2025, Philip Morris alone contributed 3.0 points, while IBM added 1.3 and CVS added 1.2. This amounts to a total contribution of 5.5 percentage points from just three stocks.
In contrast, within the Dividend Composite Index, Philip Morris was also the top contributor, but it added just 0.7 points due to its smaller index weight. The next-largest contributors were Microsoft MSFT, which added 0.7 points, and JPMorgan Chase JPM, which added 0.4 points, bringing the total contribution from the three stocks to 1.8 percentage points.
