Dividend stocks are under pressure as surging Treasury yields make bonds more appealing for income-focused investors, raising concerns for retirees who rely on payouts to cover expenses.
While payouts are typically one piece of a diversified portfolio for older investors, many boomers count on them for steady cash flow. With rates jumping and prices sliding in key dividend sectors, the volatility is unsettling.
Many dividend funds are giving back gains notched earlier this year when rates were lower, according to Timothy Chubb, chief investment officer at Girard, a Univest Wealth Division, in King of Prussia, Pennsylvania.
Real estate, utilities and materials have been among the weakest groups as higher bond yields increase the relative appeal of fixed income and dull the case for equity income. Despite worries about bonds, investor money has been flowing into bond ETFs. The iShares 20+ Year Treasury ETF (TLT) has taken in more than $3.2 billion in net inflows over the past month, according to ETFAction.com.
Market flows show a split between investors who continue to favor ultrashort bond funds, which saw near-record September inflows of about $20 billion, and those betting longer-duration yields have peaked and now offer compelling value. TLT just recorded its largest monthly inflows on record as its yield touched the highest level since 2002, based on Dow Jones data.
Boomers do not necessarily need to abandon dividend-paying equities. Advisors say a few adjustments can help blunt the impact of rising rates on income portfolios.
Don’t chase yield
Advisors caution against selling quality dividend payers at depressed prices to pursue higher yields elsewhere. Chubb said investors should prioritize companies with solid earnings growth prospects. Near-term yields may look less enticing, but growing dividends and steadier stock performance can improve total outcomes over time. He added that modest price appreciation paired with a sustainable dividend can be more attractive than an eye-catching payout from a shrinking business.
Be selective about stocks, sectors that can beat inflation
For those buying individual names, Chubb recommends scrutinizing dividend sustainability. Key questions include whether a company can raise its dividend faster than inflation, whether the business is growing, and whether dividends are supported by cash flow rather than debt. Higher-yielding firms often carry more leverage, increasing the risk of cuts as rates climb.
With dividend ETFs, understand the managers’ approach. Funds concentrating on the highest yields in slower-growth sectors such as utilities and consumer staples can be hit harder when rates rise. Investors may want to favor strategies focused on dividend growth rather than pure high yield.
One high-yield example, the Invesco S&P 500 High Dividend Low Volatility ETF (SPHD), which targets large S&P 500 payers while seeking to limit volatility, posted a one-month return of negative 7.59% and is up about 4% year to date. As of Sept. 30, its largest sector weights were real estate (20%), consumer staples (18.5%) and utilities (14%), per Invesco.
Other high-dividend funds have held up better. Vanguard High Dividend Yield Index ETF (VYM), which selects the highest-yielding companies based on current yield, has a negative one-month return of 3.85% but is up roughly 11% year to date. Its top sectors are financials, industrials and technology, according to Vanguard data as of Aug. 31.
The iShares Select Dividend ETF (DVY), which screens for dividend growth metrics and payout ratios, is down 6.02% over one month and up 11% year to date, with about 26% in financials, followed by utilities at 22% and consumer staples at 14%, per iShares data through Oct. 5.
By contrast, WisdomTree US Quality Dividend Growth Fund (DGRW) emphasizes large-cap dividend growers using quality and growth screens. With technology stocks regaining leadership, the fund shows a one-month return of negative 0.81% and an 11% year-to-date gain. As of Oct. 5, about 35% of holdings were in technology, followed by health care at 13% and communication services at 12%, with Nvidia, Microsoft, Apple and Meta Platforms among its top positions.
Look for a long history of reliable payment growth
Rising rates may continue to weigh on high-yield dividend stocks, so investors might prefer funds centered on dividend growth. Todd Rosenbluth, head of research and editorial at TMX VettaFi, said investors can choose between forward-looking and historical approaches and decide on a preferred time frame.
Vanguard Dividend Appreciation ETF (VIG) includes companies that have increased payouts for at least 10 consecutive years. It has a one-month return of about negative 2% and is up 8.8% year to date.
ProShares S&P 500 Dividend Aristocrats ETF (NOBL) holds S&P 500 names with at least 25 straight years of dividend hikes. It shows a one-month return of negative 4.9% and a 6% year-to-date gain, according to ETF Database.
International diversification is another option. WisdomTree International Quality Dividend Growth Fund (IQDG) tracks dividend payers from developed markets outside the U.S. and Canada. It is down 4.48% over one month and up about 4% year to date.
Yes, consider bonds
Even with a recent pullback, 10-year Treasury yields remain above 5%, reinforcing the case for fixed income with the highest yields in more than two decades after the Federal Reserve’s Sept. 16 quarter-point hike and expectations for more. This has created more opportunities to generate attractive income in bonds.
For buy-and-hold investors, bonds offer a straightforward path to interest income, said Bill Baynard, co-founder and managing director of Novare Capital Management in Charlotte, North Carolina. With corporate bonds yielding near 6%, up from about 5.5% a month ago, intermediate maturities around five years look appealing versus equity income where principal depends on market prices at sale, he said.
Franklin Templeton’s latest fixed-income outlook notes that while yields support income, tight credit spreads call for selectivity, favoring high-quality, short- to intermediate-maturity bonds and careful security selection, while limiting longer duration. It also highlights municipal bonds for their tax-exempt yields.
Matthew Liebman, founding partner and chief executive of Amplius Wealth Advisors in Blue Bell, Pennsylvania, said he is adding high-quality bonds to portfolios. Yields are as attractive as they have been in roughly 20 years, he said, adding that pairing high-quality stocks with high-quality bonds can work well. He cautioned investors not to buy solely for yield.
Focus on total return and a total market approach
Liebman encourages older clients to focus on total return, not just income. That means using a broader mix, including growth and international stocks alongside some dividend and bond exposure. During strong markets, the firm trims winners to meet cash flow. In weaker periods, it taps short-duration bond holdings to fund withdrawals, aiming to keep multiple months of cash on hand and to harvest long-term gains for tax efficiency when possible.
Despite current headwinds, investor appetite for dividend strategies remains strong. State Street Investment Management reported that dividend funds attracted $5.1 billion in September and $46.2 billion for the year through September. Without dividend strategies, factor ETF flows would have been negative for the month, the report said. Dividend-focused ETFs account for 65% of all factor flows this year, well above their 48% share of factor assets, lifting total factor inflows above $70 billion in 2026, the largest annual total since 2022’s $100 billion, according to State Street.
Dividend stocks and Hawaii investors
For Hawaiʻi retirees who lean on portfolio income to offset high living costs, the recent shift toward bonds can be a useful complement to equity dividends. Advisors suggest reviewing allocations, emphasizing dividend growth quality, and considering intermediate-term, investment-grade bonds or Hawaiʻi-appropriate municipal bond funds for tax efficiency. As always, align moves with risk tolerance and cash flow needs, especially as poverty among older Americans is rising.
