Latest / Stock Picking with Fexingo: Individual Equities, Research, and Building a Concentrated Portfolio / Why Dividend Growth Stocks Are Thriving in Mid-2026
Transcript
- Lucas: So the NASDAQ is down fractionally over the past week, while the Dow is up nearly a percent — and within that divergence, there's a whole narrative playing out around dividend growth stocks that I think is worth drilling into. Luna: Yeah, I've noticed that too. The VTV — Vanguard's Value ETF — is up over two percent in the last five days. Meanwhile, the mega-cap tech names are getting hammered. Lucas: Exactly. Apple down three and a half percent, Microsoft off five percent, Meta down three. And in that environment, a stock like Broadcom — which just raised its dividend by twelve percent — is actually holding steady. The dividend increase wasn't huge, but the signal it sends matters. Luna: What's the signal exactly? That management is confident about free cash flow going forward? Lucas: Right. Broadcom's business is tied to both enterprise software and custom AI chips. If they're willing to return more cash to shareholders through a higher dividend — not just buybacks — they're essentially saying, 'we think the cash generation is durable.' And in a market where big tech earnings are under scrutiny, that's a powerful statement. Luna: It's also a way to attract a different kind of investor. The dividend-growth crowd tends to be long-term oriented, less likely to panic sell. Lucas: Completely. And it's not just Broadcom. Procter & Gamble has increased its dividend for sixty-eight consecutive years. That's sixty-eight. P&G's stock is up about four percent in the last month, even as the NASDAQ has rolled over. The stability is baked in. Luna: So what's the driver here? Is it purely a rotation out of growth and into value, or is there a fundamental reason dividend stocks are working right now? Lucas: I think it's a mix. On one hand, the market is repricing risk in tech. The AI trade has gotten crowded, and any sign of margin compression — like what we're seeing with Microsoft's cloud costs — triggers selling. On the other hand, the broader economic data still looks pretty good. The S&P 500 is at 7,431, the Russell 2000 is up over three percent in a week — that's small caps catching a bid. Luna: And rate cuts are on the table. Lower rates make dividends more attractive relative to bonds. Lucas: Exactly. The ten-year Treasury yield has come down about thirty basis points since April. When bond yields fall, dividend stocks — especially those with a track record of growing payouts — become more competitive. And companies that can grow their dividends consistently offer something bonds can't: income that rises over time. Luna: So how should a listener think about building a dividend growth portfolio? Is there a specific metric you look at? Lucas: I'd start with the payout ratio — it tells you whether the dividend is sustainable. For a company like P&G, the payout ratio is around sixty percent, which leaves plenty of room for reinvestment and growth. Then look at the dividend growth rate over five and ten years. You want to see consistent increases, not erratic jumps. Luna: And avoid the highest yields? Sometimes a high yield is a red flag. Lucas: Right. A yield above six percent often means the market is pricing in a cut. Real estate investment trusts and some energy MLPs can have high yields, but those are different animals. For a core dividend growth allocation, I'd look at yields between two and four percent with a history of annual increases. Luna: Let's talk about a name that might be flying under the radar. What about Coca-Cola? It's not exciting, but it's a dividend aristocrat. Lucas: Coca-Cola has increased its dividend for sixty-three consecutive years. The stock is up about seven percent year to date, and the yield is around three percent. It's boring, but boring works when tech is down ten percent from its highs. The thing is, dividend growth investing is a compounding game. Over twenty years, a stock that grows its dividend at eight percent annually will more than quadruple your income. Luna: That's the part that gets overlooked — the income growth, not just the yield today. Lucas: Exactly. And that's why, when I look at the current market, I think dividend growth stocks are a smart place to be. Not as a panic move, but as a structural allocation. The tech selloff is creating opportunities to rotate into names with better risk-reward profiles. Luna: So what's your favorite dividend grower right now that isn't the usual suspect? Lucas: I'd point to Lowe's. The home improvement retailer has increased its dividend for fifty-plus years, and the payout ratio is still below forty percent. They benefit from a housing market that, while slow, has a structural shortage of inventory. Plus, they're buying back stock aggressively. It's a total-return play with a growing income stream. Luna: Interesting. And with mortgage rates potentially coming down later this year, that could be a tailwind. Lucas: Precisely. Now, I want to take a brief step back here. We talk a lot on this show about how to think about your portfolio, and part of what allows us to do this without any ads is that a small group of listeners chips in monthly through buy me a coffee dot com slash fexingo. It's a simple way to support the show, and it helps us keep the focus on ideas, not on selling products. Luna: Yeah, I think that's worth mentioning. It's a listener-funded model, and it works because people find value in the conversations. So if you've gotten something out of listening, that's one way to give back. Lucas: Anyway — back to the markets. The bottom line on dividend growth stocks right now is that they offer a blend of income and relative safety, but you still need to do the homework. A rising dividend is a signal, but it's not a guarantee. You want to see that the business is generating real cash flow, and that the payout is sustainable. Luna: And the current environment — falling rates, tech turbulence, small caps perking up — seems tailor-made for that strategy. Lucas: It does. So as you look at your own portfolio, ask yourself: are you getting paid to wait? If not, maybe it's time to look at the names that are quietly compounding in the background while the headlines focus on the big tech drama. Luna: Good note to end on. I'll be checking my own dividend growers this weekend. Lucas: Same here. Thanks for listening.