2025 has been one heck of a roller coaster. The markets sent mixed signals and headlines sometimes felt overwhelming.
And yet, years like this tend to bring in something important for long-term investors. The difference between noise and fundamentals becomes clearer, and companies with long-term growth strategies stand out.
To start, Donald Trump took office for the second time and immediately got to work implementing his trade policy with Liberation Day tariffs whose legality is still being discussed by the Supreme Court.
The U.S. has collected more than $200 billion in tariff-related revenue during the year. But, with inflation still on the rise, it’s unclear if the president’s policies will have their desired effects of reducing trade deficits and boosting domestic production. A recent AP-NORC poll showed the president’s lowest economic approval rating at just 31%.
Wall Street Versus Main Street
Yet, the stock market has overlooked the president’s tariff battles. The S&P 500 is up by double digits on the year – a rally that might seem odd with the conditions on the ground.
2025 was the worst year for layoffs in the U.S. since 2009, with over 1.1 million job losses. Even as workers face economic strain, capital efficiency is growing. In short, the gap between Wall Street and Main Street continues to widen, leading to headline after headline related to wealth disparity within the country.
To combat job market uncertainty, the Federal Reserve has cut interest rates three times this year, with quarter-point cuts announced in September, October, and December. Yet, long-term bond yields aren’t following suit with the short-term rates that the Fed controls, throwing further uncertainty into markets about the strength of the economy moving forward.
The Geopolitics
It doesn’t help that we’ve seen armed conflicts persist throughout the world all year.
Despite peace talk efforts by top U.S. officials, Russia and Ukraine are still at war. Western intelligence suggests that the Russian casualty count in the war has now surpassed 1 million. And neither leader, Volodymyr Zelensky or Vladimir Putin, appears to be willing to back down from the fight.
Earlier in the year, Israel and Iran entered into a 12-day war, and the U.S. got involved, dropping 14 GBU-57 massive ordinance penetrator (“MOP”) bombs on Iran’s nuclear facilities. It appears that the U.S. and Israeli coalition devastated Iranian capabilities in the region; however, terror still persists, and Israel is still at war with Hamas in Gaza.
In the Western hemisphere, we’ve seen the U.S. enhance its war on drugs with armed strikes against Venezuela. And now there are rumors that this conflict could make its way onto land in South America.
But turbulence hasn’t been limited to battlefields.
President Trump ruffled feathers in Latin America back on Inauguration Day with an executive order changing the name of the Gulf of Mexico to the Gulf of America.
Drama quickly escalated domestically as well with the Department of Government Efficiency (“DOGE”) and Immigration and Customs Enforcement (“ICE”) sagas.
Donald Trump and Elon Musk are no longer buddies, we’ve seen world leaders arguing on live television in the Oval Office, and anti-ICE protests still persist throughout the country to this day.
Wildfires tore through Los Angeles, floods ripped through Texas, humans performed the first ever pig-to-human kidney transplant, and an interstellar – just the second ever witnessed by mankind – is currently cruising through our solar system.
Looking at the Assets
And markets, meanwhile, have been responding in their own way.
Gold is one of the best-performing assets of the year, up by more than 60% right now.
AI stocks have soared throughout most of the year… but recently, the momentum behind that trade has begun to fade.
Cryptocurrencies have largely struggled this year as well. Bitcoin, which was up more than 120% in 2024, but is down by roughly 8% on the year as I write this. Ethereum is doing worse, down by roughly 12%.
I should note that I’m penning this essay before a holiday break, so it’s definitely possible that these highly volatile assets catch a bid and turn positive before the year is through. However, the fact remains, it has been a very volatile year for most asset classes… and here’s where I’d like to pivot.
Focus on the Dividends
I’ve said this countless times over the years, but here we go again…
Instead of focusing on short-term volatility in the markets (be it up or down), I’d much rather maintain my attention on a much more reliable and predictable financial metric: dividend income.
Dividends – especially those paid by dividend growth stocks that have been sustainably increasing their annual payouts for years (if not decades) – aren’t a product of market sentiment, which is oftentimes irrational and driven by fear and greed. Instead, it’s the result of a company’s execution and the resulting fundamentals (sales, earnings, and cash flows).
It’s impossible to predict where a given stock is going to trade over the next day, week, or year, even. But it’s not difficult to predict what a company’s dividend will look like far into the future. Because, oftentimes, they’re based on financial metrics that can be accurately estimated, even a year or two down the road.
2025 was yet another perfect year for the Wide Moat Letter model portfolios with regard to dividend safety. Brad and I launched these portfolios back in March 2020, and since then, one of our model portfolio picks has never experienced a dividend cut.
And if you think that the litany of 2025 headlines was crazy, 2020 is standing back saying, “Hold my beer.”
So much has happened in the world since March 2020, and yet, our strategy remains perfect. If that doesn’t inspire you to believe in dividend growth, I’m not sure what will.
Sure, the share prices of our recommendations moved up and down throughout the years. That’s to be expected. But the passive income stream provided by these picks has moved steadily in one direction: up.
But it’s not just Brad and me posting such strong results. The same thing can be said of other popular dividend growth exchange-traded funds (“ETFs”) in 2025.
The Schwab U.S. Dividend Equity ETF (SCHD) just announced its highest-ever quarterly dividend. This declaration means that SCHD’s year-over-year dividend growth rate in 2025 was roughly 5.4%.
The Vanguard Dividend Appreciation Index Fund (VIG) hasn’t declared its December dividend yet (as of writing this), but looking at the numbers, I believe that VIG’s 2025 dividend total will surpass 2024’s likely by mid-to-high single digits, resulting in inflation-beating dividend growth from that fund as well.
Here’s the deal: the stock market is all over the place. Look at any share price chart, and it’s going to be incredibly jagged. Risk assets have always been volatile, and that won’t change moving forward. But the good news is that dividends are different. And this year was proof that.
Goodbye 2025
Don’t chase yield. Instead, invest in high-quality companies that regularly grow their cash flows and sustainably return that money to shareholders. The passive income that you receive should move up and to the right, in a predictable stairstep pattern, no matter what sort of crazy headlines any given year might bring.
That’s the beauty of dividend growth investing. I absolutely love the power of compounding and the exponential growth that can occur when growing dividends are reinvested over long periods of time. But more than that, I love the reliability, the predictability, and ultimately, the peace of mind that comes from focusing on dividend income rather than relying wholly on share price appreciation.
Regards,
Nick Ward
Analyst, Wide Moat Research
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