Rotation From Tech Leads Investors to Dividend-Paying Stocks

by Natalia Kniazhevich, Geoffrey Morgan of Bloomberg News, 11/19/25

For most of the past three years, Big Tech had something to offer no matter the market environment: soaring profits in boom times, rock-solid balance sheets in times of stress.

But that latter profile has taken a hit in recent weeks, as the likes of Oracle Corp., Amazon.com Inc. and Meta Platforms Inc. tap the credit market for billions to fund artificial intelligence projects.

The result is the first sustained selloff for the group since April, with the Nasdaq 100 leading the broader market lower as investors ditch tech winners in favor of more defensive stocks. One of the beneficiaries: companies with juicy dividend payments.

That group, which includes old-economy stalwarts like Exxon Mobil Corp., JPMorgan Chase & Co. and Procter & Gamble Co., is often coveted when riskier stocks start to look expensive. They also tend to be calmer in times of turbulence. The Cboe Volatility Index jumped above 24 Tuesday, surpassing its long-term average of 19.

“It’s common for investors to favor dividend-paying stocks when overall market valuations look stretched. These stocks often trade at lower valuations, and the steady cash flows can help cushion volatility,” said Christopher Cain, Bloomberg Intelligence’s US quantitative equity strategist.

Bloomberg’s Magnificent 7 index has lost 7.6% since it peaked on Oct. 29, as investors grow concerned about the AI trade. The Vanguard High Dividend Yield ETF is down just 1.3% in the same time period.

The divergence is continuing a trend where tech is taking on its more traditional role as a growth sector, while defensive plays such as health-care, utilites and makers of household necessities come into favor.

Correlation between the Mag 7 and defensive sectors has fallen to 80%, according to 22V Research, underscoring the shift in risk appetite.

“The underlying theme is a rotation into industries that return a lot of cash,” the firm said. 22V’s long-short Cash Return factor — which tracks dividends and buybacks — is up 1.4% in the past week and 2% in the month, while broader indexes are down across the board. The dividend yield factor was the second-best performer on a weekly basis among the 12 tracked by Bloomberg Intelligence.

Another allure of dividend payers comes from signs the Federal Reserve isn’t a lock to cut interest rates after its Dec. 10 meeting. Treasury yields are near multi-month lows, making equity payouts attractive.

“If the Fed is going to not let the economy run hot, then you want to rotate into things that are higher quality, steadily returning cash to investors. And that’s the phenomenon we’re seeing right now,” said Kevin Brocks, director at 22V Research.

During the market pullback this month, some of the top-performing stocks in the S&P 500 are those whose dividends are high relative to share prices.

DuPont de Nemours Inc., for instance, offers investors a 4.2% dividend yield and is up 13% this month.

One challenge for investors seeking safety in dividend payers is that the S&P 500’s overall yield has fallen toward the lowest in 50 years, according to Trivariate Research. The average payout ratio has dropped to 1.14%, the lowest since the dot-com bubble burst in the early 2000s.

Part of the reason goes back to the big tech firms whose need for cash is slowing dividend and buyback announcements.

“It just seems the common thread is high cash return profile. The Mag 7 is spending less on buybacks and more on CapEx, which is why it’s no longer that super high cash returning group, at least, for now,” Brocks added.

Traditional defensive groups like health care, consumer staples and utilities that typically offer stable dividends have been outperforming as their businesses are less exposed to swings in the economic cycle.

Health-care in particular has emerged as a hedge-fund favorite. It was the most net bought US sector for the second consecutive week, fueled entirely by added long positions. Managers have now been net buyers for nine straight weeks, pushing the US health-care long-short ratio to its highest level in more than three years.

The rotation is also steering capital toward financials and energy, which share a common trait: strong cash-return profiles underpinned by dividend payouts.

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Bloomberg News provided this article. For more articles like this please visit bloomberg.com.

Rotation From Tech Leads Investors to Dividend-Paying Stocks

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