Dull dividend stocks are making a comeback. As investors cool on pricey U.S. growth names, income strategies, once dismissed as boring, are outperforming global markets. Two leading asset managers say dividend-focused portfolios, especially in Europe, are now gaining ground on their flashier peers.
Martijn Rozemuller, CEO Europe at VanEck, closely monitors the inflows into the VanEck Morningstar Developed Markets Dividend Leaders ETF. The fund’s assets under management doubled to over 2 billion euros by April and have outpaced the global equity market, gaining more than 8 percent since January.
“By now, the dividend ETF manages 2.5 billion euros, making it our second-largest ETF after our defense fund,” Rozemuller said. “In recent years, investors were focused on tech and growth stocks. But as growth slows, they’re returning to quality companies with reliable dividends.”
He credited the ETF’s success not only to performance but also to marketing efforts in Europe and a high-quality index. “When we started developing the ETF in 2016, high-dividend funds were criticized for chasing one-off payouts,like those after a business sale. We wanted to avoid that dividend trap, and that led us to Morningstar, which focuses on dividend sustainability.”
Low U.S. exposure
The ETF, built on Morningstar rules, leans on mega-caps with little growth orientation. “They’re large, boring companies, but they’ve done well,” Rozemuller said. “This ETF is one of the largest holdings in my personal portfolio. It fell much less during April’s volatility than our global equity ETF, which is more growth-heavy.”
He warns past performance is no guarantee. In early 2020, the fund lagged as governments pushed companies to suspend dividends. Still, its relatively low U.S. weighting,just 18 percent,is now a strength. “Many investors want less U.S. exposure, and that’s helped our ETF.”
Even in a “risk-on” environment since the U.S.-China trade deal, the ETF has kept attracting capital. Meanwhile, thematic funds,such as those tracking mining or semiconductors,have seen outflows. “The outflow from the Semiconductor ETF came after strong inflows last year. The Deepseek developments in China triggered some profit-taking,” Rozemuller said. “Inflows have picked up again recently, thanks in part to optimism around Nvidia.”
Bank stocks lead
Goldman Sachs Asset Management shares Rozemuller’s view: dividend stocks are poised to outperform, especially with portfolios overweight in Europe and underweight in the U.S., said Nicolas Simar, co-head of Goldman’s international equity income team.
“For the first time in years, we’re seeing money flow back into Europe,” he said. “Low valuations and improving economic prospects in Germany are key drivers. The earnings gap between Europe and the U.S. is narrowing, making European stocks more attractive.”
Defensive and cyclical picks
Sector selection is also contributing. Simar’s portfolios benefit from both defensive and cyclical companies with a domestic focus. Bank stocks stand out. “Even after recent gains, European banks remain cheap, well-capitalized, and insulated from U.S. trade tensions. Their dividend yield is 6 percent, with share buybacks adding 1 to 2 percent.”
Among defensive plays, Simar sees value in telecoms. “CapEx has peaked. Free cash flow yields are 9 to 10 percent, with moderate growth.”
Consumer-facing sectors have underperformed. Simar is cautious about cyclicals like automakers,especially those with global exposure. Western carmakers such as BMW and Stellantis face stiff competition from low-cost Chinese rivals.
Luxury stocks are also out of favor. “Valuations are high, and earnings expectations are falling due to cautious U.S. consumers and a lack of recovery in China,” he said. Producers of food and beverages are also being avoided. “Volumes aren’t recovering, and they have limited pricing power.”
Beyond performance, income strategies provide downside protection. “With slower growth and trade-related uncertainty, dividend strategies held up better in April’s volatility,” Simar said. “But if momentum returns to Big Tech, they may again lag behind.”