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Where are all the Dividends?
The year is 1999. Markets are awash with talk of the dot com boom. Tech companies are raging forward at breakneck speed. Growth is their north star. Their valuations are inflated. The bubble is about to burst.
And burst it did.
Some might be tempted to say that we appear to be repeating ourselves with the current AI boom, but many differences separate us from our past. Yes, the market is being driven by big tech companies. And yes, many of them seem overvalued. They are, however, more profitable than their 1990s forebears. Yet one main commonality that investors are clocking is the serious lack of dividends being offered by tech companies today and in the late 90s.
Companies typically offer dividends to shareholders as compensation for taking on the risk of investing. They usually provide quarterly income that can be cashed out or reinvested to compound on itself over time. But as growth took over in the 1990s, dividend yield dropped to an all-time low of 1.15%.1 This matters because dividends have historically made up a significant portion of total return for the S&P 500 — 34% on average from 1940 to 2024.2 Without high dividend yield, returns suffer. Their near total absence (a mere 1.8% annualized return)2 post-bubble burst is believed to have contributed to the “subpar” returns of the lost decade.1
And yet here we are again, nearing the all-time dividend lows of the early aughts. As of June 2025, S&P 500 dividend yield was 1.25%.3 But that doesn’t mean dividends are gone. It just means the big tech companies driving S&P 500 returns are focused on hyper-growth instead of certain fundamentals like dividends. They are issuing stock buybacks instead and using their cashflow to invest heavily in AI.4 It’s now more important than ever to look for investments with high-quality and/or high-yield dividends.
Because dividends still matter.
Dividends contributed 17% of total S&P 500 returns in the 2010s and 12% in the 2020s (as of Dec. 31, 2024.)2 Dividends matter the most for the companies issuing them. Compared to companies that cut or eliminated dividends from 1973 to 2024, the companies that initiated or increased their dividends experienced higher returns with less volatility.2 They also tend not to cut dividends as quickly as buybacks during market dips or times of high volatility. If anything, companies tend to grow their dividends over time.
When added to a portfolio, dividends help buffer against volatility because they are a strong signal of a company’s long-term health.4 Adding a dividend ETF to one’s portfolio helps diversification* so that if tech doesn’t continue to perform as expected or one’s financial goals shift, there’s a potential income component waiting in the wings.
Looking for distinct dividend ETF strategies for a diversified portfolio?
TrueShares Featured Funds:
- Opal Dividend Income ETF (DIVZ): Highly concentrated in high-quality, dividend-providing, domestic companies. Seeks above-average dividend yield and below-average volatility with monthly distributions.
- Opal International Dividend Income ETF (IDVZ): Highly concentrated in high-quality, dividend-providing, international companies. Seeks above-average dividend yield and below-average volatility with monthly distributions.
- TrueShares Active Yield ETF (ERNZ): An actively-managed fund aiming to provide consistent income by focusing on high-yield without sacrificing valuation.
- https://www.latimes.com/archives/la-xpm-2001-sep-30-fi-51481-story.html
- https://www.hartfordfunds.com/insights/market-perspectives/equity/the-power-of-dividends.html
- https://ycharts.com/indicators/sp_500_dividend_yield
- https://finance.yahoo.com/news/where-have-all-the-dividends-gone-123021534.html
Disclosures:
*Diversification does not ensure a profit nor protect against loss in a declining market.
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