By Lawrence C. Strauss

The S&P 500's yield keeps slipping, and that's making life tough for income investors.

Recently around 1.2%, the index's yield is headed toward its all-time low of 1.12%, based on data going back to 1936. It reached that trough at the height of the tech bubble in March 2000, according to S&P Dow Jones Indices.

Still, plenty of dividend-paying stocks remain. It's a good time for those seeking dividend income to check their portfolios.

One worry is that thanks to the rapid growth and widespread adoption of index funds that track the S&P 500, many investors have significant exposure to that index and its paltry yield. And as a result, they might not be getting the yield they need.

There are several causes for the yield shrinkage, one being the big share price increases in recent years that pushed yields lower.

Another is that the Magnificent Seven stocks, whose share prices have surged in recent years, account for roughly one-third of the S&P 500's market capitalization. But those companies either pay small dividends or none at all, depressing the index's yield. Nvidia, for example, sports a market cap of about $4.4 trillion, the largest of any company. But its dividend yield is a minuscule 0.02%. Apple's yield is 0.4% and Microsoft's is 0.7%.

At the same time, there are plenty of S&P 500 stocks with attractive yields, growing dividends, and healthy cash flows. And S&P 500 companies that have a payout continue to raise their disbursements, albeit at a slower pace lately.

"The market's low yield is concerning for a dividend investor," says Daniel Peris, a senior portfolio manager at Federated Hermes, citing "the one-sided/lopsided structure of the market." But Peris, who oversees dividend portfolios, adds that "the dividend-focused investor can still put together well-diversified portfolios that have material income streams attached to them."

The availability of dividend stocks means that investors seeking income need to do their homework before picking individual stocks -- or they need to select a suitable fund or separate account strategy that favors dividend stocks.

"My argument for the past 20 years has been that, post-1990s, if investors wanted dividend income, they couldn't by default get it from the market anymore -- and they had to seek it out elsewhere," says Jenny Harrington, CEO and portfolio manager at Gilman Hill Asset Management.

As Harrington and others point out, there's no shortage of dividend stocks. About 80% of the companies in the S&P 500 pay a dividend. They are expected to hike their dividends by nearly 6% this year over 2024 levels and to set a record for annual payments, according to S&P Dow Jones Indices. But that increase would be lower than the 6.4% boost in dividends last year.

Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, says companies are taking a more cautious approach to dividend increases, partly owing to worries about tariffs and inflation.

Harrington recently added Kimberly-Clark to her equity-income portfolio. Shares of the company, whose products include Huggies and Kleenex, have returned about minus 6% this year through Oct. 13. The stock yields 4.2%. The company has raised its dividend for 53 straight years, most recently in January, when it declared a quarterly disbursement of $1.26 a share -- up 3% from $1.22.

In her most recent equity-income strategy write-up, Harrington noted that she expects Kimberly-Clark's recent focus on streamlining to boost the company's margins and support low- to mid-single-digit dividend growth.

Another reliable dividend payer is PepsiCo, which yields 3.8%. The stock this year has returned about 2.6%, including dividends. The maker of snacks and beverages has raised its dividend for 53 straight years, having done so earlier this year. The company declared a quarterly dividend of $1.42 a share, up 5%.

There's also Johnson & Johnson, which yields 2.7%. The stock has done very well this year, returning 35%. The company's board in April declared a quarterly dividend of $1.30 a share, a 4.8% increase and marking the 63rd straight year in which the healthcare giant has boosted its dividend.

For investors who don't want to pick individual stocks, there are plenty of dividend-focused funds. One possibility is the $11.2 billion ProShares S&P 500 Dividend Aristocrats exchange-traded fund. It tracks the S&P 500 Dividend Aristocrats index, whose constituents have paid out a higher dividend for at least 25 straight years and includes companies such as J&J, Procter & Gamble, and Walmart. The fund returned about 3.4% year to date through Oct. 13.

The ProShares ETF held 69 stocks as of Sept. 30. For investors looking for a fund with a much bigger group of companies, there's the $115 billion Vanguard Dividend Appreciation ETF. As of Aug. 31, it had 337 holdings. The fund tries to track the S&P U.S. Dividend Growers index, which is predominantly made up of large- and mid-cap names. The fund has returned about 11.9% this year.

The $24 billion T. Rowe Price Dividend Growth fund is actively managed. Tom Huber has helmed the portfolio for more than 25 years and has notched an 11.8% return this year. Huber emphasizes stocks that are growing their payouts, not those with big yields. Top holdings as of Sept. 30 included Microsoft and Walmart. A post on Morningstar's website lauds the fund for its "time-tested approach and accomplished lead manager."

At the end of the day, investors need to balance their exposure to the S&P 500 with the need they may have for income. A yield slightly above 1% won't do much to supplement your income.

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October 17, 2025 21:30 ET (01:30 GMT)

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