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Here’s an interesting fact for investors that are fans of shareholder rewards: 2025 marked the fifth straight year in which U.S. companies directed more capital to share repurchase programs than to dividends.
“About a trillion dollars this year (2025) in buybacks and about $750 billion in dividend payments,” says Morningstar’s Dan Lefkovitz. “And it’s happening for a lot of reasons. You know, there are tax advantages, of course, to the share repurchase. Dividends are taxed if you’re holding them in a taxable account. Whereas if a company repurchases its shares, as long as you don’t sell those shares, if you’re a holder, your fractional ownership of the company increases.”
Throw in the fact that growth stocks extended leadership over value peers and it’s understandable that some market participants’ enthusiasm for dividend investing has waned. Spend enough time in the wrong investing internet chats and one is apt to find younger investors saying dividends are obsolete. That’s not the case.
In fact, exchange traded funds (ETFs) such as the Keeley Dividend ETF (KDVD) are as relevant as ever.
Don’t Sleep on This Dividend Dynamo
The Keely Dividend ETF debuted last month, but that lack of age belies near-term relevance because the fund “focuses on small- and mid-cap companies: an underutilized and often overlooked segment of the market that historically offers higher yields, lower valuations, and stronger domestic growth exposure,” according to the issuer.
The assessment that mid- and small-cap dividend payers are overlooked relative to their large-cap counterparts is accurate, but overlooked doesn’t imply lacking worth. Advisors can tell investors that when smaller stocks are added to the equation, the universe of dividend payers to consider exponentially increases.
By the way, the S&P MidCap 400 and SmallCap 600 indexes are up 6.1% and 7%, respectively, year-to-date while the S&P 500 is higher by just 1.4%. Yes, those percentages reflect a mere two weeks of trading, but some market observers believe the resurgence of smaller stocks will prove durable this year and there are other reasons for advisors to evaluate KDVD.
“Dividend yields on large-cap stocks have declined over time, while yields on mid- and small-cap stocks have risen,” notes co-portfolio manager Thomas Browne. “We focus on small- and mid-cap stocks because you get more yield out of smaller companies. By focusing on the dividend payers, the difference is even greater.”
Dash Away from Trash
When small-caps started perking up in the latter stages of 2025, the rebound was led by “junky” companies – a phenomenon that’s not rare, but one that also doesn’t last forever. Said another way, judicious advisors and investors may soon shift to quality smaller stocks.
They’d be smart to do so because 46% of the small-cap Russell 2000 Index’s market cap is controlled by unprofitable companies, well ahead of the pre-financial crisis average of 27%.
“Dividend payers have lagged. Last year was characterized by non-earners, lower-quality, higher-multiple, higher-beta, higher-volatility stocks performing very well, while dividends did not, so we think the combination of attractive fundamentals and recent underperformance sets up a good outlook,” adds Browne.
Translation: It’s possible to access both dividends and quality with smaller stocks. KDVD proves as much.
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