The Dividend Payouts Are Expected to Hit a Record This Year. These Stocks Are Among Wall Street's Favorites

Despite a slowdown in dividend growth during the second quarter of 2025, there are signs that brighter days could be ahead for income-focused investors.

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According to S&P Dow Jones Indices, the net change in dividends — calculated by subtracting dividend cuts from increases — climbed by $7.4 billion during Q2. While this represents positive movement, it’s a significant drop from the $16 billion increase seen during the same period in 2024 and down from $15.3 billion posted in the first quarter of this year.

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One key factor behind the moderation in dividend hikes is the lingering economic uncertainty, which may have prompted companies to tread carefully with shareholder payouts. But that could change soon. Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, believes that as the economic policy landscape becomes clearer, businesses may be more willing to revise their plans — potentially including larger dividend increases.

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Looking ahead, Silverblatt sees dividend growth picking up in the second half of 2025, potentially outperforming historical averages. A boost could come as early as the third quarter, especially from large banks.

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Banks Expected to Drive Q3 Gains

Silverblatt anticipates that the third quarter could begin with an increase in dividends from major banks, thanks in part to positive results from the Federal Reserve’s recent stress tests. These tests evaluate how well banks can withstand a financial crisis, and favorable outcomes often encourage institutions to return more capital to shareholders.

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He went on to say that this quarter could even set a new record for total dividend payments. For the full year, dividends from S&P 500 companies are projected to grow by 6%, down from the 8% increase originally expected before 2025 began. That would also be a slight dip from the 6.4% gain seen in 2024, and just above the 5.1% rise recorded in 2023.

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Dividend Stocks Face Competition from Buybacks

While dividends remain a cornerstone of shareholder returns, they’ve lost some ground in popularity over the years. Deutsche Bank noted in a July 8 research note that the S&P 500 dividend yield is now near historical lows. Instead, many companies prefer share buybacks, which overtook dividends as the primary method of returning capital to investors in the mid-2000s.

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Jim Reid, head of macro and thematic research at Deutsche Bank, warned that buybacks come with greater risk. Unlike dividends, which tend to be more stable, buybacks are optional and can be quickly halted during market downturns. Moreover, they often take place when stock prices are high, potentially inflating earnings and valuations.

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“With dividend yields approaching all-time lows, there's a case that investor expectations have become too optimistic,” Reid wrote. He warned that in times of crisis, the absence of reliable dividend income might be more impactful than markets currently realize.

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Dividends Could Make a Comeback

Despite their diminished popularity, some market experts expect dividends to regain favor over time. Daniel Peris, a senior portfolio manager at Federated Hermes and author of The Ownership Dividend, predicted on CNBC that dividend-paying stocks will see a revival. He believes that over time, the market will revert to a higher percentage of companies paying dividends compared to today.

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Top Dividend Picks for Investors

For those looking to invest in dividend-paying stocks, there are still many strong contenders. CNBC Pro compiled a list of names from the Vanguard Dividend Appreciation ETF, selecting companies with at least a $10 billion market cap, positive analyst coverage from at least 15 firms, and rated Buy by 55% or more of those analysts. The stocks also needed to show at least 10% upside to analysts’ average price targets.

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Here are some standout names from that screen:

Bank of America (BAC) recently announced an 8% increase to its quarterly dividend, raising it to 28 cents per share starting in the third quarter. This followed the bank’s successful completion of the Fed’s stress test. The stock offers a 2.2% yield and has gained 7% year to date. BAC is set to release its second-quarter earnings on Wednesday.

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Coca-Cola (KO) has returned 11.5% so far this year and provides a 2.9% dividend yield. The company is scheduled to report its latest earnings next week. In April, it surpassed analysts’ expectations and reaffirmed its full-year guidance, noting that higher tariffs were “manageable” but acknowledging potential short-term volatility due to global trade tensions.

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Procter & Gamble (PG) offers a 2.7% yield and is rated Buy by most analysts, although it was downgraded on Monday by Evercore ISI to In Line from Outperform, citing market share losses on Amazon. Shares of P&G recently hit a 52-week low and are down 8% in 2025 so far.