Latest / Bull Market Conversations with Fexingo: Rallies, Momentum, and Riding Market Strength / How Bull Markets Make Dividend Stocks Boring Again
Transcript
- Lucas: So we're sitting here on July 3rd, 2026, and the S&P 500 just closed at 7,483, up nearly 2% in the last five days. The Nasdaq is up over 2% as well. And yet, there's a whole corner of the market that's barely budging. Luna: You're talking about dividend stocks, right? The usual safe haven when things get shaky? Lucas: Exactly. But here's the thing—things aren't shaky. They're on fire. And boring dividend payers are getting left behind in a big way. Look at the Dividend Aristocrats index, which tracks companies that have raised dividends for at least 25 consecutive years. It's underperformed the broader market by more than 8% year-to-date. Luna: That's a pretty wide gap. But isn't that kind of the point? In a bull market, you want growth, not income. Dividends are for retirees and scared money. Lucas: That's the conventional wisdom, and it's not wrong if you're comfortable chasing momentum. But I think there's a case that dividends are actually more interesting when nobody wants them. When everyone piles into the same growth names—Palantir up 14.5% in five days, CrowdStrike up 10.7%—you start to wonder if the rotation back to income is just a matter of time. Luna: So you're saying it's contrarian to buy dividends right now? That feels a little dangerous. The market is screaming 'go growth'. Lucas: It is. And I'm not saying dump your CrowdStrike. But consider this: over the last 20 years, roughly 40% of the S&P 500's total return came from dividends. That's not a trivial number. Even in a bull market, reinvested dividends compound quietly. The problem is, when the market is up 20% in a year, people forget that dividends exist. Luna: Yeah, but if I'm getting 18% from Palantir in a week, why would I care about a 2.5% yield from a utility? The opportunity cost is huge. Lucas: You're right in the short term. But let's talk about risk. The Dividend Aristocrats aren't just about yield—they're about stability. Companies like Procter & Gamble, Coca-Cola, Johnson & Johnson—these are businesses with pricing power and durable moats. When growth stocks finally stumble—and they will at some point—dividend stocks tend to hold up better. And if you've been reinvesting dividends throughout the rally, you've been buying more shares at higher prices, which actually boosts your long-term compounding. Luna: I get the compounding argument, but isn't that a bit academic? In practice, nobody wants to own the boring stuff when all their friends are bragging about 50% gains in AI stocks. Lucas: Look, let me be real. If you're young and have a long time horizon, pure growth is fine. But for someone closer to retirement, or anyone with a balanced portfolio, having some dividend exposure is like an insurance policy you don't think about until you need it. And right now, that insurance is cheap because nobody wants it. Luna: That's actually a fair point. It's like buying insurance when the sun is shining. But let me ask you this—what about the tax drag? Dividends are taxed as ordinary income unless they're qualified. In a bull market, you're better off deferring taxes with growth stocks. Lucas: That's a valid concern, especially for taxable accounts. But qualified dividends get the long-term capital gains rate, which is lower than ordinary income for most people. And if you're holding dividend stocks in a tax-advantaged account like an IRA, it's a non-issue. The real question is whether the total return—dividends plus price appreciation—beats a pure growth approach over a full market cycle. Luna: And does it? Historically, I mean. Lucas: It depends on the cycle. In the 2000s, dividends crushed growth because the dot-com bubble burst. In the 2010s, growth won hands down. The 2020s have been mixed so far. But here's the kicker—when you look at rolling 10-year periods, dividend growers have beaten the broad market more often than not. The consistency is what matters. Luna: Okay, so let's get practical. If someone wanted to add a dividend tilt to their portfolio right now, what would you recommend? Not specific stocks, but the general approach. Lucas: I'd look at sectors where dividend growth is sustainable. Consumer staples, healthcare, some industrials. Avoid high-yield traps like certain REITs or energy companies that might cut their payouts if earnings dip. And I'd dollar-cost average in—don't try to time the rotation, just start building a position gradually. Luna: That makes sense. You know, it's funny—we talk so much about the hot stocks, the big movers. But the boring stuff really does keep the engine running. And I think a lot of listeners might be ignoring it because it's not exciting. Lucas: Right. And that's exactly why we're talking about it today. Because when everyone is looking the same direction, it's worth asking what they're ignoring. Luna: Speaking of keeping the engine running—you know, we get to have these conversations without any ads. That's something we're proud of. And it's only possible because some listeners choose to support us directly. Lucas: It's true. We don't run any commercials, no sponsors pushing products. If you've gotten value from our shows and want to help keep them ad-free, there's a simple way. Just go to buy me a coffee dot com slash fexingo. That's buy me a coffee dot com slash fexingo. No pressure at all, but every bit helps. Luna: Yeah, and we really appreciate those who do. It let us focus entirely on the content. Anyway, back to dividends—one thing I wanted to ask: do you think the Fed's rate stance affects the dividend trade? With the Fed funds rate at 3.63% and not moving, does that change anything? Lucas: Great question. At 3.63%, the risk-free rate is still pretty attractive. So a 2.5% dividend yield doesn't look great compared to a money market yielding 3.6%. But again, that's the short-term view. If rates start to come down later this year or next, those dividend yields become more competitive. And dividend stocks could see price appreciation as yields compress. Luna: So you're saying the dividend trade might be a bet on lower rates down the road. Lucas: Partially. But more than that, it's a bet on the quality of the businesses themselves. Companies that raise dividends consistently tend to have strong free cash flow, disciplined management, and resilient business models. Those are good to own regardless of the rate environment. Luna: Alright, I'm getting more convinced. But I still think the momentum trade has legs for now. Maybe a small dividend allocation as a hedge is the way to go. Lucas: That's exactly the right approach. Not all or nothing. Just a little ballast in the portfolio. And if the market does eventually cool off, you'll be glad you have it. Luna: Well, speaking of cooling off—next time we should talk about what happens when the bull market actually ends. That's a whole different conversation. Lucas: Absolutely. That's for another episode. For now, keep an eye on those dividend growers. They might not make headlines, but they've been around for decades for a reason.