MarketsJun 29, 2026
Why Income Investors Are Rotating Back to Dividends
Capital Allocation
Rhea Lobo
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Dividend investing fell out of favor during the AI rally as investors chased high-growth tech stocks instead. That pushed the S&P 500's dividend yield to just above 1%, one of the lowest levels on record. Now, money is starting to return to higher-yielding sectors.
Dividend-paying stocks have quietly staged a comeback. Pipelines, REITs, and broad dividend ETFs (three of Barron's preferred income trades entering 2026) all delivered double-digit returns in the first half. The publication still favors dividend stocks over bonds for income in the second half.
The S&P 500 yields just over 1%, but several income sectors offer yields of 3% or more. That includes utilities, REITs, pipelines, and cable and telecom companies. Bonds have become more competitive as yields have risen, but credit spreads remain close to historic lows, leaving less room for further gains.
"Spreads are tight but all-in yields look good."
Rob Waldner of Invesco.
Midstream pipeline companies have led the way. The Global X MLP & Infrastructure ETF gained 24% in the first half of 2026 as demand for natural gas infrastructure grew alongside AI data centers and LNG exports.
Portfolio managers favor Williams Companies for its target of 10% annualized EBITDA growth through 2030. Energy Transfer offers a roughly 7% dividend yield. Long-term contracts also make pipeline cash flows less exposed to swings in oil and gas prices.
"The case for dividends is as strong as it's ever been, given the volatility in the markets."
ClearBridge Investments portfolio manager Michael Clarfeld.
REITs also rebounded after a weak 2025, returning 12% in the first half. Apartment landlords including Equity Residential, Mid-America Apartment Communities, and Camden Property Trust yield about 4%, while improving rental fundamentals and low correlation with technology stocks continue to attract income investors.
Cable and telecom remain the contrarian income trade. Comcast yields about 6% while AT&T offers a 5% yield. Competition from Starlink remains a risk, but the recent share price declines suggest much of that concern is already reflected in valuations.
For investors seeking both income and value, a few names stand out. Abbott Laboratories yields 2.7%, Medtronic yields 3.6% and Accenture yields 5.2%.
The highest yield is not always the best dividend stock. Morningstar evaluates dividend safety using three key measures: payout ratios, economic moats, and distance to default. Companies scoring well across all three are generally less likely to cut their dividends.
PepsiCo and S&P Global are two of Morningstar's top picks. Both have raised their dividends for more than 50 straight years and trade below the firm's fair value estimates. PepsiCo yields 4.1% and trades about 15% below fair value, while S&P Global yields 0.91% and sits roughly 21% below its estimate.
A high yield can be a warning sign as easily as an opportunity. Morningstar argues it's better to focus on the quality of the business than the size of the dividend.
