Investing.com - As the excitement around artificial intelligence continues to captivate investors, dividend stocks appear increasingly undervalued. The optimistic outlook for AI's potential in reducing costs and improving products has propelled shares of companies like Microsoft Corporation (NASDAQ:MSFT) and NVIDIA Corporation (NASDAQ:NVDA), while also contributing to the Nasdaq 100's impressive gains this year.
In contrast, dividend stocks – those with consistent payouts that help stabilize long-term returns – seem neglected. For example, the iShares Select Dividend ETF (NASDAQ:DVY) is down nearly 8% year-to-date despite a yield of about 4.7%. Even the ProShares S&P 500 Dividend Aristocrats ETF (NYSE:NOBL), featuring stocks with a history of raising their payouts for at least 25 consecutive years, has gained only a meager 0.1%.
This divergence became more pronounced when tech stocks stumbled just before the Federal Reserve began raising interest rates in early 2022 since higher rates negatively impact growth shares. Consequently, non-dividend or low-dividend yielding stocks have outperformed high-yield ones by roughly a hefty margin this year.
The significant performance gap between funds like iShares Select Dividend and Nasdaq-100 has widened their valuation disparities as well; median stock valuations differ considerably between these two indices. This growing chasm presents an attractive opportunity for investors seeking yield amidst market uncertainties.
While some challenges face various high-yield dividend payers such as regional bank turmoil affecting bank stocks or lower oil prices impacting energy companies, numerous other options exist outside these sectors.
For those concerned about security within the iShares Select Dividend ETF universe, they can consider exploring ProShares S&P 500 Dividend Aristocrats instead - known for its reliable track record but slightly lower yield and higher valuation. Moreover, dividend stocks may fare better if the Federal Reserve decides not to halt interest rate cuts or in case of an economic slowdown.
It's essential to remember that dividends have consistently played a vital role in stock returns over the past century, regardless of emerging technological trends. As AI continues its market dominance, investors would be wise to consider the relative attractiveness and stability offered by dividend stocks.