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Growth that transcends market cycles

During market volatility, stock valuations may not accurately reflect a company's underlying business fundamentals. By prioritizing investments in quality companies that consistently pay dividends, investors can establish a reliable income stream while positioning portfolios for potential long-term appreciation and growth.

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Explore Principal Small-MidCap Dividend Income Fund

Dividends can drive results

For almost a half century, dividend paying stocks not only created an income stream for investors, but they provided an attractive risk/return profile. The outperformance of large-cap dividend payers over non-dividend payers—2.5% annually since 1975—is well-known, so it may surprise investors that the outperformance within small-and mid-cap (SMID) stocks is even more pronounced. SMID dividend payers outperformed non-dividend payers by over 6% annually, with only two-thirds of the volatility.

Long-term power of dividends
SMID value stocks had higher returns with lower risk from 1975 to 2024.

Large-cap stocks Returns Standard deviation
Dividend-paying stocks 14.04% 16.13%
All common stocks 13.28% 17.55%
Non-dividend paying stocks 11.49% 24.13%
Small - and mid-cap stocks Returns Standard deviation
Dividend-paying stocks 15.71% 17.46%
All common stocks 12.88% 20.84%
Non-dividend paying stocks 9.64% 25.78%

Source: Empirical Research Partners. Data from 01/01/1975-12/31/2024. Large-cap stocks: All largest 1,000 stocks. Small- and mid-cap stocks: Next 2,500 stocks after the largest 500 by market capitalization, rebalanced annually. Returns: Monthly returns compounded and annualized. Equally weighted data. Dividends are not guaranteed.

Don’t miss small- and mid-cap dividends

Investors typically buy SMID stocks for their potential to generate higher growth over time, knowing they can carry higher risk than large caps. Not all SMID stocks are created equal, and, in fact, there is a subgroup within the SMID universe that produced market-leading returns at lower risk over long time periods—dividend growers. By painting the SMID cap universe with a broad brush, many investors miss out on the capital appreciation and income generating benefits of owning them in their earlier stages of growth before they graduate to large caps.

Long history of better returns with lower risk
SMID value stocks had higher returns with lower risk from 1988 to 2024.

Scatter chart showing SMID value stocks had higher returns with lower risk from 1988 to 2024.

Source: Ned Davis Research. Data from 01/01/1988-12/31/2024. Data represents constituents of the Russell 2500 Value Index and is for illustrative purposes only. Equally weighted data. Past performance does not guarantee future results. Market index has been provided for comparison purposes. Dividends are not guaranteed.

Standard deviation measures volatility, and therefore risk of an investment.

Active management: Essential for identifying quality companies

We look for companies that have a solid track record of paying dividends and know how to stay ahead of their competitors. These companies have strong finances and great leadership teams running the show. This strategy helps us deliver steady returns for our clients, especially when markets get rough.

The key is finding quality companies that regularly share profits with shareholders through dividends. When you invest in businesses with proven advantages and healthy balance sheets, you can build a portfolio that generates reliable income and grows over time, even during market ups and downs.

Our actively managed, dividend-paying equity portfolios may help investors looking to:

  • Boost total return potential, especially in low growth environments.
  • Improve portfolio resilience possibilities when market cycles transition.

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Disclosure

Carefully consider a fund’s objectives, risks, charges, and expenses. Contact your financial professional, visit www.PrincipalAM.com, or call sales support at 800-787-1621 for a prospectus, or summary prospectus if available, containing this and other information. Please read it carefully before investing.

All figures shown in this document are in U.S. dollars unless otherwise noted.

Index description

Russell 2500® Value Index measures the performance of those Russell 2500® companies with lower price-to-book ratios and lower forecasted growth values.

Risk considerations

Past performance is no guarantee of future results. Investing involves risk, including possible loss of principal.

Equity markets are subject to many factors, including economic conditions, government regulations, market sentiment, local and international political events, and environmental and technological issues that may impact return and volatility. Dividends are not guaranteed. Small- and mid-cap stocks may have additional risks including greater price volatility.

Asset allocation and diversification do not ensure a profit or protect against a loss.

Equity investments involve greater risk, including heightened volatility, than fixed income investments. Small and mid-cap stocks may have additional risks, including greater price volatility.

Important information

This material covers general information only and does not take account of any investor’s investment objectives or financial situation and should not be construed as specific investment advice, a recommendation, or be relied on in any way as a guarantee, promise, forecast or prediction of future events regarding an investment or the markets in general. Information presented has been derived from sources believed to be accurate; however, we do not independently verify or guarantee its accuracy or validity. Any reference to a specific investment or security does not constitute a recommendation to buy, sell, or hold such investment or security, nor an indication that the investment manager or its affiliates has recommended a specific security for any client account. Subject to any contrary provisions of applicable law, the investment manager and its affiliates, and their officers, directors, employees, agents, disclaim any express or implied warranty of reliability or accuracy and any responsibility arising in any way (including by reason of negligence) for errors or omissions in the information or data provided.

Principal Funds are distributed by Principal Funds Distributor, Inc.

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MM13488WA | 03/2025 | 4320993-032026