Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / Why Dividend Growers Beat High-Yield Stocks in 2026
Transcript
- Lucas: We talk a lot about yield on this show — how much a stock pays right now. But I think we sometimes skip the more important question: is that yield going to be there in five years, ten years? Luna: You're talking about the difference between a high-yield stock and a dividend grower. And honestly, in this market, that distinction matters more than ever. Lucas: Exactly. Look at where we are on May 25, 2026. The ten-year Treasury is yielding 4.57 percent. The two-year is at 4.08. The curve has flattened — the spread is down to about 43 basis points from 49 a few days ago. That's telling us the market sees slower growth ahead. Luna: So in that kind of environment, a fat dividend looks tempting. Verizon yields over 5 percent right now. Altria yields even more. Lucas: Right. And they've both had a good week — Verizon up 3.4 percent, Altria up 0.2. But the question is sustainability. Verizon's payout ratio is over 50 percent. Their debt load is significant. They're not growing earnings quickly. That dividend might not grow much, if at all. Luna: Now compare that to Johnson & Johnson. It yields about 2.4 percent — half of Verizon's. But it's up 2.4 percent just this week. And it has raised its dividend for 63 consecutive years. Lucas: That's the key. If you buy JNJ at 2.4 percent yield and they grow the dividend 6 percent a year, in ten years your yield on cost is over 4 percent. And you've had price appreciation along the way. With Verizon, you might get 5 percent now, but if the dividend never grows and the stock stays flat, you're earning the same 5 percent forever. Luna: And that's assuming Verizon doesn't cut. Altria has already cut in the past. The tobacco business is shrinking. Lucas: Right. Altria's yield is about 8 percent, which screams 'risk premium.' The market is pricing in a potential cut. So the high yield isn't free money — it's compensation for uncertainty. Luna: This is exactly the kind of conversation that, if it helps you think about your portfolio differently, honestly, if today was worth a coffee to you, that's the link — buy me a coffee dot com slash fexingo. No pressure, just a small way to keep the show ad-free. Lucas: Yeah, it's a nice way for listeners who find value here to support the work. And it lets us keep digging into these nuances without commercials. Luna: Back to the numbers — so if I'm building a dividend portfolio today, where do I start? Do I just buy SCHD and call it a day? Lucas: SCHD is a great option. It's up 2.5 percent this week, trading at 32.83. It screens for dividend growth and financial health. The yield is around 3.5 percent, but the growth rate has been about 10 percent annually. VYM is another — up 1.3 percent this week, at 158.70. It's broader, more value-oriented, yield around 2.8 percent. Luna: But neither of those is going to give you that 5 percent yield that some people want for income today. Lucas: No, and that's the trade-off. If you need cash flow right now, you might mix in some higher-yield names like Verizon or even some preferred stocks. But I'd argue that for most long-term investors, total return matters more than current yield. A dollar of dividend growth today is worth more than a dollar of yield tomorrow. Luna: And the yield curve flattening reinforces that. When long-term rates are barely above short-term rates, the market is saying 'growth is slowing.' That's when you want companies that can keep paying you more even if the economy stalls. Lucas: Exactly. Johnson & Johnson, Procter & Gamble, Coca-Cola — these are Dividend Aristocrats. They've raised dividends for decades. They make things people buy regardless of the economy. PG is up 1.4 percent this week. KO up 0.3. Their yields aren't huge, but they're reliable. Luna: And they tend to hold up better in downturns. Look at the Russell 2000 this week — up 3.4 percent. Small caps are rallying. But if we do get a slowdown, those high-yield small caps could get crushed. The Aristocrats are safe havens. Lucas: So the framework I'd suggest is: start with a core of dividend growers — SCHD, VYM, or individual Aristocrats. Then, if you need more income, add a satellite of higher-yield names, but only if you understand the risks. Know the payout ratio. Know the debt. Know the business. Luna: And check the dividend growth rate. A stock that grows its dividend 10 percent a year doubles your income every seven years. That's compounding you can't get from a static 5 percent yield. Lucas: Right. So when you see a stock yielding 8 percent, ask yourself: why is it that high? Is the market pricing in a cut? Or is it just undervalued? Altria might be the former. But there are others, like some energy stocks, that are genuinely undervalued and paying high yields that could grow. Luna: Energy is a whole other conversation. For today, I think the takeaway is: don't chase yield blindly. Look for growth. Even a lower starting yield can beat a high static yield over time. Lucas: And with the Fed on hold — rates flat at 3.64 percent — the environment for dividend stocks is favorable. Companies aren't fighting higher borrowing costs. They can keep returning cash to shareholders. Luna: So if you're reinvesting dividends, the compounding really kicks in. A stock like JNJ, with a 2.4 percent yield growing at 6 percent — in 20 years, your yield on cost could be 7 or 8 percent. That's the power of dividend growth. Lucas: And that's the approach that built wealth for generations. It's not flashy. It's not exciting. But it works. Slow, steady, compounding. Luna: Alright, next time we'll look at a specific sector that's getting interesting for dividends — maybe utilities, which have been rallying lately. Lucas: That's a good one. Utilities are up this week too. But for now, remember: yield is just the starting point. Dividend growth is the engine. Luna: And if you want to support the show so we keep having these conversations, you know where to find us — buy me a coffee dot com slash fexingo. Lucas: Thanks for listening. We'll be back tomorrow with another episode.