Dividend Stocks Ascend as Tech’s Earnings Growth Slows Amidst Geopolitical Turmoil

Dividend-paying companies are rapidly narrowing the earnings growth disparity with technology stocks, injecting increased earnings momentum into the S&P 500. This trend, following a significant uptick in this key earnings metric over the past year, suggests that dividend stocks may present an increasingly compelling proposition for investors seeking income and stability in a volatile market environment. The broadening of earnings momentum beyond the technology sector arrives at a critical juncture as investors look for strategies to mitigate risk amidst ongoing geopolitical instability, including a second major military conflict in the Middle East within a year and an unprecedented shock to global oil markets.

In the first quarter of 2025, the S&P 500 Dividend Aristocrats Index experienced a negative earnings growth rate of 5.5%. By the fourth quarter of the same year, this rate had seen a robust recovery, climbing to a positive 9%. Concurrently, the Nasdaq 100 Index witnessed a deceleration in its earnings growth, declining from over 35% in the second quarter of 2025 to below 15% by the fourth quarter.

Simeon Hyman, global investment strategist at ProShares, highlighted this shift during a recent appearance on CNBC’s "ETF Edge" podcast. He noted that the rotation away from the dominant "Mag 7" technology stocks, a trend that predated the recent geopolitical escalations, warrants closer examination by investors navigating market uncertainty. "We think one of best ways to take advantage of it is through quality stocks, companies growing their dividends for 25 consecutive years at minimum and that have been out of favor," Hyman stated, emphasizing the appeal of undervalued yet fundamentally sound companies.

While the market reversal commenced prior to the outbreak of hostilities, Hyman posited that high-quality, lower-volatility stocks could prove particularly beneficial during periods of conflict. He observed that the positive performance is not solely driven by stock price appreciation but also by fundamental improvements within these companies. "Go back four quarters and all the earnings growth was coming from the tech sector and Nasdaq 100. Those dividends growers year-over-year, earnings were shrinking a little bit. But now the gap has closed and may shortly go the other way. We’re almost now to parity," he explained, referencing data from Bloomberg cited by ProShares in a recent blog post discussing the search for a new soft landing.

The ProShares S&P 500 Dividend Aristocrats ETF (NOBL) exemplifies the investment vehicles available to investors seeking exposure to large-cap U.S. stocks that offer substantial dividend payouts. Among its top holdings are major energy companies Chevron (CVX) and Exxon Mobil (XOM), alongside retail giant Target (TGT).

ETF experts largely concur that the market outlook for dividend stocks has demonstrably improved. Todd Rosenbluth, head of research at VettaFi, commented that the financial, healthcare, and industrial sectors, which frequently house dividend-growing companies, are experiencing sustained growth. He added, "Growth characteristics of companies in the financial sector, the health care sector, the industrial sector … those are where you often find dividend growth. They continue to experience more and more growth."

A long-standing history of increasing dividend payouts typically signifies consistent cash flow generation and prudent management. Historically, this has not always kept pace with the rapid profit expansion observed in the technology sector. However, robust operational performance and enhanced profit margins have bolstered earnings for numerous dividend-paying companies across various industries. As these earnings rise, these companies continue to increase their dividends while simultaneously strengthening their balance sheets. In contrast, technology stocks face exceptionally high expectations following several years of substantial gains. Furthermore, significant investments by tech firms in artificial intelligence (AI) infrastructure are placing considerable strain on their balance sheets and cash flow. Dividend-paying companies outside the tech sphere often trade at more accessible valuations, and as their earnings growth accelerates, investors may increasingly perceive them as offering a dual benefit of stability and potential for capital appreciation.

The analysis acknowledges that in the event of prolonged conflict in the Middle East, characterized by oil prices consistently exceeding $100 per barrel and a sustained closure of the Strait of Hormuz, the resulting inflationary pressures on a supply-constrained global economy could potentially trigger a recession. In such a scenario, no equity investment would be entirely risk-free. Dividend stocks and the ProShares NOBL ETF have recently experienced negative market sentiment, declining by 5% in the past month, though they remain up approximately 8% over the preceding year.

Hyman advised that this period is "certainly not a time to capitulate, but maybe a time to tweak around the edges," advocating for a greater focus on quality investments. "We love our dividend growers," he affirmed. He further pointed to historical market behavior following previous prolonged Gulf wars, noting that equities generally trended higher in the six to twelve months after initial pullbacks, with gains ranging as high as 25-30%. "The history is pretty darn clear … markets do rebound," he asserted.

Hyman also emphasized the historical pattern of dividend stock outperformance exhibiting "some durability to it." He highlighted that these stocks are currently playing a more significant role in stabilizing the overall market. "In addition to the durable outperformance opportunity from the dividend growers, the other thing that is very important is that it has kept overall S&P 500 fundamentals stable," Hyman stated. "They are now filling the gap," he concluded, as the earnings growth of mega-cap tech companies moderates, "and that suggests a little bit of a soft landing."

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