AI-related growth stocks have delivered multibagger gains over the past few years, whereas reliable dividend stocks have been left behind. With Treasuries hovering above 5% for most of 2023 and 2024, income investors locked in government-backed income that easily beats the average S&P 500 yield without taking equity risk. And for growth investors, piling into dividend stocks didn’t make sense as the AI rally kept accelerating.
However, it’s a good idea to start buying dividend stocks on the dip before interest rate cuts eventually come. The Nasdaq 100 price–earnings ratio is near 2021 levels at 41x. AI could push that up even more, but increasing your exposure to undervalued dividend stocks gives you better risk-reward for the long run. You can also reinvest or cash in the yield while you wait for them to recover.
This post originally appeared at 24/7 Wall St.