Investors may not be getting as many rate cuts as they had hoped in 2025, but there are still plenty of solid tailwinds for dividend-paying stocks. The Federal Reserve last week penciled in two interest rate cuts in the new year, fewer than the four reductions policymakers predicted back in September. A falling interest rate environment generally bodes well for dividend-paying stocks, as they have an easier time competing against the yields on risk-free Treasurys. “In the construct of the Fed lowering rates, you see money market rates starting to come down as well,” Charles Gaffney, managing director at Morgan Stanley Investment Management and portfolio manager of the Eaton Vance Dividend Builder Fund (EIUTX) . Indeed, the Crane 100 Money Fund Index now has an annualized seven-day yield of 4.27%, compared to 5.13% at the end of July. There was $6.81 trillion in total money market fund assets as of the six-day period ending Dec. 24, according to the Investment Company Institute. Lower interest rates aren’t the only 2025 development that could boost dividend payers. President-elect Donald Trump has called for slashing the corporate tax rate to 15% from its current 21%. Generally, lower tax rates would boost companies’ cash flows, which in turn may spur dividends, buybacks and merger and acquisition activity, Gaffney added. A busy year for dividend payers Dividend-paying stocks tend to be sleepy companies whose days of huge growth are behind them, but 2024 proved different, as some of the world’s largest tech players initiated dividend payments. Meta Platforms , Salesforce and Alphabet are among the tech giants to make their first dividend payments this year. The dollar amounts of these new dividends are small – for instance, Meta offers 50 cents per share, giving the stock a dividend yield of just 0.3% – but they offer long-term shareholders a combination of price appreciation and the prospect of dividend raises. These names also reward investors who reinvest their dividend payments, resulting in compounded growth. “That’s a big shift in the market,” said Cheryl Frank, a portfolio manager on the Capital Group Conservative Equity ETF (CGCV) . “You have these new dividend payers that have been really good companies and have these little dividends, and they’re just starting on the journey.” Utilities have also had a big 2024: Though the sector’s performance lags the S & P 500 – up about 21% this year compared to the broad-market index’s 26% advance – investors have been excited about the companies’ role in powering artificial intelligence data centers. Constellation Energy has seen its shares nearly double in a year in which it announced it would restart the Three Mile Island nuclear power plant in Pennsylvania in 2028, supplying power to Microsoft. Shares of Vistra are up more than 270% in 2024, driven by the company’s prospective role in providing nuclear power to the AI revolution. Both Constellation and Vistra have dividend yields of 0.6%. “We had 20 years of no growth in electricity demand because we were offshoring and making everything more efficient,” said Frank. “We’re now in a world of talking about electrifying vehicles, and as we build up the EV fleet, you have increased demand and this big AI boom that is energy intensive.” She added that utilities, consumer staple companies and health care providers are some of the sectors where “you can still find companies that are reasonably valued on a relative basis.” Plays for the new year Looking into 2025, Gaffney at Morgan Stanley highlighted chip stock Broadcom , whose shares more than doubled in 2024 and surged more than 50% in December alone. The stock has a dividend yield of 1%. EIUTX holds Broadcom, and it was the second-largest holding in the fund as of Oct. 31. Broadcom CEO Hock Tan said that the total market for the company’s intelligence chips and components for AI networking could range between $60 billion and $90 billion by 2027. “That looks like a strong fundamental case that the business should continue to do extremely well over the coming years,” Gaffney said, adding that Tan’s guidance shows “that the runway for opportunities and growth is extremely sizable and strong.” The portfolio manager also likes EOG Resources , another holding in EIUTX. The energy stock is about flat on the year and offers a dividend yield of 3.2%. “It’s a little bit of a contrarian call in energy,” Gaffney said, noting that the sector generally hasn’t participated in this year’s rally. Nevertheless, EOG is “a company that is very well managed,” he said. “They run the business with a 3% dividend yield that’s been growing at a high-single digit rate.” The company’s business also generates the capital necessary to offer special dividends – non-recurring payments that are in addition to the cycle of regular dividends. “Net-net, [EOG is] a 3% yielder that, as it continues to grow and produce great results, is able to offer additional special dividends that can get you close to a 4% dividend income yield,” Gaffney said.
