The Brentview Dividend Growth strategy outperformed the S&P 500 for the calendar year 2025 on a preliminary gross basis, returning 19.1% versus the index’s 17.9%. As seen in Chart 1, it was a challenging year for most active large-cap fund managers where roughly 73% underperformed the S&P 500. Our journey towards outperforming the index did not occur in a straight line.
Chart 1
The stock market reacted negatively in early 2025 as the Trump administration introduced tariffs. Investors responded to the news flow by selling equities in a broad-based manner. However, our strategy maintains a lower portfolio beta to minimize volatility. In this instance, the portfolio held up better during this drawdown period as seen in Chart 2. After the market digested the tariff news, equities rallied back strongly, and our stock selection in financials and technology thrived. Towards the end of the 3rd quarter into early 4th quarter, we trimmed our weightings in the higher beta/lower yielding securities in our strategy, including Oracle, Lam Research, and Broadcom. We gradually reallocated those proceeds towards some of our lower beta/higher than market dividend yielders such as Johnson & Johnson, Union Pacific, and WEC Energy. We believed these moves were prudent in minimizing future price and performance risk.
Given the incremental defensive positioning, we lagged the index in the final 4th quarter of the year when our strategy returned 1.7% (preliminary/gross) versus 2.7% for the S&P 500.
Chart 2
Brentview Dividend Growth vs. S&P 500
(January 1, 2025-June 30, 2025)
Source: Zephyr by Informa
As shown in Table 1, after a difficult 2024, Health Care finished 2025 as the best performer, followed by communication services, and financials. Index detractors were interest rate sensitive sectors like real estate and utilities, followed by consumer staples. Flexibility was key for 2025. Most dividend strategies limit their choices if the common stock has a dividend yield below some pre-determined threshold. In today’s environment, ignoring companies with a dividend yield below 1%, for example, means missing out on 57.5% of the dividend paying equities. Stocks yielding less than 1% were the best performing yield group in 2025. While stocks yielding 3% or more returned 14.6% as shown below. This data would suggest that dividend strategies had a good year. However, only a few dividend strategies outperformed the S&P 500. Ultimately, 2025 favored lower yielders, which meant strategies eliminating this segment also missed out on potential performance.
Table 1
S&P 500 Index
Dividend Growth Scorecard
According to Howard Silverblatt, Senior Index Analyst at S&P Dow Jones Indices, the cumulative dollar value of U.S. common stock dividends per share paid in 2025 posted a 5.5% increase for the trailing twelve months. Mr. Silverblatt also expects dividend growth rates to average “mid-single digits” 1 in 2026, which is slightly below the 2025 results. As seen in Table 2, on a year-to-date basis, all 11 GICS sectors of our holdings have seen a dividend increase in 2025. For the year, all thirty-six holdings (100%) announced dividend increases of 9.7% on average. 2025 ended on a strong note as four companies announced dividend increases. Eli Lilly and Broadcom led the pack with 15.3% and 10.2% respective dividend increase announcements. WEC Energy announced a 6.7% increase while our sole monthly dividend payer, Realty Income, kept its streak intact of consistent 0.2% incremental dividend increases throughout the calendar year. As we head into 2026, the health of the dividend landscape remains very much intact. According to BofA Securities, the S&P 500 dividend payout sits at record low of 30%, which provides ample room for growth. Market expectations for dividend growth range from 5% to 8% in 2026. Given these expectations, we’re very comfortable with the idea that our strategy can maintain a faster growth rate than the broader landscape.
Table 2
Source: Public company filings
Outlook on the Economy and the Stock Market
For 2025 the US economy was characterized by accelerating growth and a relatively low unemployment rate of 4.4%. After starting the year with a negative 0.9% growth rate, GDP accelerated as the year progressed. The Q2 growth rate jumped to 3.8% followed by a 4.3% increase in Q3, despite the longest government shutdown in history. According to the Atlanta Fed’s GDP Now estimate, Q4 GDP may exceed 5%. However, a weakening job market also remains in this “low hire low fire” environment. The K shaped economy also became a buzzword for the spending dichotomy between higher income consumers and the bottom 20% of consumers struggling with a higher cost of living.
With all these factors in place, the US stock market has delivered 3 straight years of double-digit returns. Can it continue? Earnings are now expected to grow a solid 13.6% in 2026. However, the S&P 500 forward PE ratio is elevated at 22x at year end 2025 as seen in Chart 3. The valuation has only been this high twice in history. The first occurrence was in the late 90’s dot com bubble and more recently following the post COVID rally in 2020. The stock market may require the Federal Reserve to lower interest rates to justify these valuations. In the meantime, we believe investors should look for stocks with reasonable valuations in groups or market capitalizations with lower PE ratios.
Chart 3
S&P 500 Forward Price/Earnings
Source: LSEG Datastream, Yardeni Research
MARKET OUTLOOK & PORTFOLIO POSTIONING
We believe the key issues that face the market for the coming year will be how AI evolves. This evolution will range from the enablers of AI technology to the consumer companies that ultimately will use the innovations. There are similarities to the current ramp up in investments to the 1999 dot com era, but there are also important distinctions from that period. This time around the demand is more tangible and beneficial to a broader purpose than just internet e-commerce. In the current environment, the ‘hyperscalers’ have real cash flow and profitability that supports the cap ex. Moreover, it appears as though the investments are concentrated and underwritten by these stronger financed companies and not fueled as much by speculation from hundreds of new companies.
Having said that, we remain vigilant regarding the risks as they may affect our companies. We own a significant portion of the portfolio in AI related companies that are enablers and beneficiaries of the technology both directly and indirectly. AI disruption in the near term is likely to be asymmetric, negatively affecting some industries that are information-based and derive value from rote routines, while positively impacting the enablers such as infrastructure (compute, power, and data). As part of the evolution, those companies that can manage growth, and balance it with their own profitability, will likely thrive and those that cannot, may end up struggling. The example of Amazon’s painful investment during the 1999-2003 period eventually leading to their dominance serves as both a cautionary and inspirational tale.
This past quarter we swapped a long-held storage REIT for another one whose business is in the high-demand area of nursing homes. As previously noted in past commentaries, we believe some opportunities are broadening out. Our past healthcare exposure generally favored companies benefiting from the rise of the GLP-1 class of drugs. Additional findings seem to suggest that the aging US population might be another area of greater focus. We also sold a mid-cap life insurance company focused on selling retirement products, which faces a challenging declining rate environment.
Looking ahead, while our portfolio beta is lower than the market, our composition remains balanced between growth and value companies. Our lower yielding and dividend initiator segments have augmented dividend growth. These same segments have generally allowed our strategy to capture secular growth opportunities in artificial intelligence, baseload power, and infrastructure trends. We are also overweight traditional value sectors such as financials, utilities, and materials that augment our portfolio dividend yield. Even with a volatile backdrop, portfolio turnover was on the lower end of the spectrum this year and totaled 14% for the trailing twelve months.
Ultimately, we are managing our strategy and being mindful on valuations and company selection. Most companies remain cautious over tariff policies, consumer spending, and rising costs. With this backdrop in mind, we remain confident that dividend growth stocks have the characteristics for many different market environments.
Sources:
This commentary reflects the views of Brentview Investment Management and is subject to change as market and other conditions warrant. No forecasts are guaranteed. This commentary is provided for informational purposes only and is not an endorsement of any security, sector, or index. The commentary should not be seen as a solicitation or offer to buy or sell any securities. The advisor (Brentview Investment Management, LLC), and their employees and clients, may hold or trade the securities mentioned in this commentary. Diversification does not guarantee a profit or eliminate the risk of a loss. PAST PERFORMANCE IS NOT A GUARANTEE OF FUTURE RESULTS.
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