Smart Dividend Portfolio: Yield Momentum

Shrilekha Pethe on May 4, 2026

Dear Investor,

Welcome to this edition of TipRanks’ Smart Dividend Portfolio & Newsletter.

Market-Moving News: May 04, 2026

Last week, stocks remained high as tech gains helped offset mixed macro news. The S&P 500 (SPY) rose 0.29% to 7,230, while the Nasdaq (NDX) gained 0.94% to $27,710. In contrast, the Dow Jones (DJIA) slipped 0.31% to 49,499. At the same time, the U.S. 10-year yield edged down to 4.37%, indicating that rate pressure remains.

Meanwhile, oil (CM:CL) stayed volatile after a sharp jump tied to supply risk. Crude traded near $104 after a spike earlier in the week. Gold (CM:XAUUSD) held near $4,615, while Bitcoin (BTC-USD) broke $78,000, but dipped slightly afterward. Overall, the market showed a steady tone, led by tech strength, even as energy and policy risks stayed in focus.

Macro news also played a key role last week. The Federal Reserve held rates at 3.5% to 3.75%, but the decision included four dissents. This rare split shows that views on policy are starting to diverge.

In energy, oil jumped after the Strait of Hormuz stayed shut, with Brent near $126 at one point. This increased the focus on firms like Exxon Mobil Corporation (XOM). In a surprising move, the United Arab Emirates said it will leave OPEC, adding more uncertainty to supply plans.

In healthcare, Eli Lilly and Company (LLY) raised its outlook due to strong demand for its weight loss drugs. At the same time, the FDA moved to limit compounded versions of these drugs, a step that may support both Lilly and Novo Nordisk (NVO).

Looking ahead, Fed policy will stay in focus after the rare dissent split. Investors will watch for any shift in tone that may signal a change.

At the same time, AI spend will remain a key theme. Big Tech has confirmed intense capex, and the market will track whether this leads to steady returns or margin pressure (or both).

Finally, earnings momentum will stay in view. Strong results from tech have supported the market, but rising costs and policy risk may shape the next move.

This Week’s Quality Dividend Stock Idea

State Street Corp. (STT) is a U.S.-based global financial institution that provides a broad range of banking, investing, asset management, and financial risk management products and services. Its operations span consumer banking, global wealth and investment management, global banking, and global markets, serving individuals, small and middle-market businesses, and large corporations.

Asset Guardian

State Street traces its origins to 1792, when its predecessor institution, Union Bank, was founded in Boston, establishing an early foundation in trust and custody services that would shape its long-term model. The company’s modern structure emerged in 1969 with the formation of State Street Corp. as a bank holding company, enabling expansion beyond traditional banking into specialized institutional services. Over time, the firm positioned itself as a dedicated custody bank, focusing on servicing and safeguarding client assets rather than competing in retail or commercial lending, creating a capital-light, fee-driven model with strong scalability.

Through the latter half of the twentieth century, State Street expanded globally alongside the rapid growth of institutional investing. As pension funds, mutual funds, and cross-border capital flows increased, the company built out custody, fund administration, and back-office capabilities, allowing it to scale assets under custody and administration while benefiting from operating leverage as volumes grew.

In the 2010s, growth increasingly came through targeted acquisitions and platform expansion. In 2016, the acquisition of GE Asset Management added more than $100 billion in assets under management and strengthened State Street Corporation Global Advisors’ active, alternatives, and OCIO (outsourced chief investment officer, where the firm manages clients’ investment portfolios on their behalf) capabilities. This was followed by the 2018 acquisition of Charles River Development, a transformative deal that combined front- and middle-office SaaS capabilities with State Street’s existing infrastructure. The transaction became the foundation of the firm’s “Alpha” strategy, enabling the development of an integrated front-to-back investment platform and marking a structural shift toward higher-value, technology-driven services.

State Street continued to build on this platform in subsequent years. The acquisition of Mercatus expanded Alpha into private markets, enabling end-to-end management across private equity, real estate, infrastructure, and private debt. At the same time, the company streamlined non-core operations, including the 2017 divestiture of its interests in Boston Financial Data Services and IFDS, sharpening its focus on higher-margin servicing and technology offerings.

More recently, State Street has extended its capabilities through both acquisitions and strategic investments. The planned acquisition of Mizuho’s global custody business outside Japan strengthens its international servicing footprint, while the purchase of PriceStats in 2025 adds alternative data and real-time inflation analytics to its research capabilities. A minority investment in Coller Capital further expands its exposure to the growing private markets ecosystem.

Today, State Street’s earnings reflect a multi-decade evolution into a scaled, global provider of investment servicing, management, and technology solutions, with growth driven by rising institutional assets, recurring fee revenues, and continued platform integration.

Fee Flywheel

State Street operates a specialized, institutionally focused business model built around servicing and managing financial assets rather than originating loans. At its core, the company generates the majority of its revenue from fee-based activities tied to the scale and complexity of client assets, complemented by net interest income derived from its balance sheet.

The largest contributor is its Investment Servicing segment, where State Street acts as a custodian and administrator for trillions of dollars in client assets. It earns servicing fees for safeguarding assets, settling trades, maintaining records, performing fund accounting, and providing reporting, compliance, and performance analytics, with these fees accounting for around 37% of the company’s total revenue. These revenues are largely linked to assets under custody and administration (AUC/A), creating a model where growth in global markets, client inflows, and new mandates directly expand the fee base. Because many of these services are embedded in long-term client relationships and mission-critical operations, they tend to generate recurring and relatively stable revenues with high switching costs.

The company complements this with its Investment Management business, which generates management fees based on assets under management (AUM). Through a broad mix of index strategies, ETFs, and active mandates, this segment benefits from both market appreciation and net inflows, adding a second layer of asset-linked revenue growth. In parallel, State Street earns additional fees from foreign exchange trading, securities finance, and financing solutions provided to institutional clients.

Net interest income forms a secondary earnings driver, supported by client deposit balances and the reinvestment of those funds into high-quality securities. While more sensitive to interest rate cycles, this income stream enhances overall profitability and cash generation.

Looking ahead, the company’s earnings growth is supported by the structural expansion of institutional assets globally, ongoing client demand for outsourced investment operations, and the continued buildout of integrated platforms such as State Street Alpha. By combining front-, middle-, and back-office capabilities with data and analytics, the firm is increasing wallet share per client while improving operating efficiency. This scalable, fee-driven model, supported by technology integration and global reach, underpins consistent cash flow generation and long-term earnings visibility.

Platform Reinvention

State Street is entering what management describes as the next phase of its operating model transformation, with a clear emphasis on technology, automation, and expanding into new areas of client demand. Rather than relying solely on scale in traditional custody and servicing, the company is investing in platforms that can deepen client relationships, improve efficiency, and open new revenue streams.

A key pillar of this shift is the integration of artificial intelligence across the organization. Management highlighted the rollout of an “agentic” platform and an internal AI development environment, designed to embed automation into high-impact areas such as trade processing, data management, client reporting, and risk monitoring. These tools are expected to reduce manual processes, lower operating costs, and improve accuracy, supporting margin expansion as the business scales. Over time, broader adoption of AI across the workforce should translate into sustained efficiency gains and operating leverage.

At the same time, State Street is positioning itself at the intersection of traditional finance and digital assets. The company is building infrastructure to support tokenization, the process of representing assets like funds, securities, or cash on blockchain-based systems. This includes the planned launch of the State Street Galaxy Onchain Liquidity Sweep Fund, which is designed to integrate digital asset capabilities with traditional liquidity management. More broadly, management outlined a roadmap to enable clients to issue, manage, and service tokenized assets, aimed at capturing early demand in this emerging area. While still in the early stages, this strategy expands the company’s addressable market and creates optionality for new fee-based revenue streams over the long term.

Another area of expansion is wealth services. Through its partnership with Apex Fintech Solutions and by leveraging the capabilities of its Charles River platform, State Street is developing a fully digital, globally scalable custody and clearing solution for wealth managers. Through this initiative, State Street is entering a fast-growing segment that complements its institutional franchise and provides an additional avenue for asset and fee growth.

In the near term, earnings have also been supported by balance sheet dynamics. CFO John Woods highlighted a surge in client deposits to approximately $250 billion. This growth in deposits allowed State Street to reduce its reliance on higher-cost, short-term wholesale funding, which declined as a share of total funding during the quarter. By replacing more expensive market-based funding with lower-cost client deposits, the company improved its overall cost of funds.

A larger deposit base provides a cheaper and more stable source of funding, which directly supports profitability. At the same time, reducing dependence on short-term wholesale markets lowers sensitivity to funding cost volatility, particularly in uncertain rate environments.

State Street addressed investor concerns around rising competition in the ETF market, particularly the growing influence of distribution platforms such as Charles Schwab, which can charge fees or steer flows toward preferred products. These platforms play an increasingly important role in how retail and advisory clients access ETFs, raising questions about pricing pressure and potential shifts in market share.

The company’s management emphasized that, while these dynamics are evolving, State Street does not view platform-related fees as a material threat to its overall ETF business. The key reason lies in the firm’s diversified distribution model. Unlike providers that rely heavily on a single channel, the company serves a broad mix of institutional investors, wealth managers, and intermediary platforms, reducing dependence on any one distribution partner.

In addition, a significant portion of the company’s ETF franchise is anchored by large, highly liquid products that are deeply embedded in institutional portfolios. Flagship funds such as SPY are widely used for trading, hedging, and asset allocation, making them less sensitive to platform-level pricing changes. These products benefit from scale, liquidity, and long-standing market presence, and support the durability of flows and fee revenue.

These developments highlight a business that is simultaneously improving near-term earnings through balance sheet optimization while investing in technology and new capabilities to drive longer-term growth and margin expansion.

Margin Expansion

Over the past three years, State Street has delivered steady financial expansion, with revenue and earnings per share growing at CAGRs of 6.6% and 21.6%, respectively. This growth has been driven by rising client assets, which lifted servicing and management fees, alongside strong client activity across its markets businesses. Higher net interest income, supported by elevated rates and larger deposit balances, provided an additional tailwind, while operating leverage, cost discipline, and share repurchases amplified EPS growth.

The company carried this momentum into 2026, reporting a strong first quarter marked by broad-based performance across servicing, markets, and investment management. Revenue rose 16% year-over-year to $3.8 billion, driven by a 15% increase in fee revenue to $3 billion and a 17% rise in net interest income to $835 million, supported by margin expansion. Earnings growth outpaced the top line, with reported EPS increasing 22% and adjusted EPS rising 39% to $2.84 and above expectations, reflecting continued operating leverage.

Underlying this performance was sustained asset growth and client engagement. Assets under custody and administration (AUC/A) reached a record $54.5 trillion, reflecting both market appreciation and new business wins totaling $365 billion. This growth translated into servicing fees of $1.4 billion, up 11%, as revenues are directly tied to the level and complexity of client assets being serviced. These flows translated into $56 million of new servicing fee revenue wins, highlighting sustained demand for outsourced investment operations. At the same time, State Street continued to deepen client engagement through its integrated platform strategy, including additional State Street Alpha mandate wins, reinforcing its push toward higher-value, technology-enabled solutions.

Assets under management (AUM) rose 20% to $5.6 trillion, supported by strong ETF inflows. Markets activity also remained robust, with foreign exchange trading revenue rising 29% on higher client volumes. This segment tends to benefit when trading activity rises, providing a counterbalance to more market-dependent businesses. These trends supported fee expansion within trading and financing services, further diversifying revenue streams beyond traditional custody.

These trends contributed to the company’s ninth consecutive quarter of positive operating leverage, with a pre-tax margin of 29.0% and return on tangible common equity¹ (ROTCE) rising to 20.1%, while earnings per share increased 39% to $2.84.

Despite continued investment in technology and higher revenue-linked costs, expense growth remained relatively contained. Total expenses increased 15% to $2.8 billion, or 9% on an ex-notable basis, enabling positive operating leverage of 616 basis points. State Street reported a CET1² ratio of 10.6% at the end of the quarter, down modestly from prior periods mainly because it returned capital to shareholders and saw an increase in risk-weighted assets as market conditions normalized. While earnings continued to add capital, this was partly offset by higher balance sheet usage and the reversal of unusually low risk levels seen in the previous quarter.

At the same time, the firm maintained solid liquidity, with its liquidity coverage ratio (LCR) remaining above regulatory requirements, indicating it still holds a strong buffer of high-quality liquid assets to meet short-term obligations even in stressed conditions.

Building on strong first-quarter momentum, management raised its full-year 2026 outlook, signaling confidence in the company’s growth trajectory. Fee revenue is now expected to increase in the range of 7% to 9%, up from prior guidance of 4% to 6%, reflecting continued strength across servicing, investment management, and markets-related activities. Net interest income growth is projected at 8% to 10%, a notable improvement from earlier low single-digit expectations, supported by margin expansion and favorable balance sheet dynamics.

At the same time, expense growth is anticipated to rise to 5% to 6%, driven by higher revenue-linked costs and ongoing investments in technology and platform capabilities. Management expects net interest margin to moderate slightly to 110–115 basis points through the remainder of 2026, as the initial benefits from deposit inflows and funding optimization begin to normalize amid evolving rate conditions.

—

1- Return on tangible common equity (ROTCE) measures how efficiently a company like State Street generates profits from its core tangible equity base, excluding intangible assets such as goodwill. In simple terms, it shows how much net income the company earns for each dollar of tangible common equity, which represents the capital available to absorb losses and support operations.

2- The CET1 ratio (Common Equity Tier 1) indicates how well-capitalized the bank is relative to regulatory requirements. A strong CET1 supports stability, buybacks, and dividends.

Capital Returns

State Street has built a consistent track record of shareholder returns, paying dividends since 1997 and increasing them for the past 15 consecutive years. Over the last decade, the dividend has grown at a CAGR of 9.2%, and the company currently offers a yield of 2.43%, above the financial sector average of 1.3%. In the most recent quarter, State Street declared a dividend of $0.84 per share and returned a total of $633 million to shareholders, including $233 million in dividends. This is complemented by an active share repurchase program, with up to $5 billion authorized and $2.9 billion already executed since inception last year, including $400 million in the first quarter of 2026. In the first quarter, STT had a total payout ratio of 90%, and management expects a payout ratio of around 80% for FY26, supported by strong earnings generation and a solid capital position.

The company’s shares have risen by more than 65% over the past year, reflecting record first-quarter 2026 results driven by growth in fee revenue, higher net interest income, and increased client activity. This performance has been accompanied by improved operating momentum and an upward revision to fee revenue growth guidance, supported by continued strength in asset servicing and investment management. At the same time, State Street is expanding its capabilities through strategic investments and partnerships, particularly in digital assets, tokenization, and technology-driven solutions, positioning the business for incremental revenue streams and efficiency gains.

From a valuation perspective, the company is currently trading at a premium to its historical averages based on non-GAAP trailing and forward P/E and forward price/book value ratios, suggesting the market is pricing in stronger earnings visibility and improved profitability. However, compared to its peers like Northern Trust and BNY Mellon, STT is trading in the low valuation range based on non-GAAP trailing and forward P/E ratios, forward price/book, and return on equity and ROA, implying the market has yet to fully re-rate its earnings power, indicating a relative undervaluation opportunity.

Analysts remain optimistic about STT as the company benefits from strong ETF flows and its massive asset base, which support a durable, fee-driven revenue model with recurring income and scale advantages. At the same time, balanced growth across fee revenue and net interest income, combined with operating leverage, is driving more stable earnings and margin expansion. Looking ahead, investments in digital assets, tokenization, AI, and SaaS are diversifying revenue streams and building higher-margin, recurring cash flows with long-term growth optionality.

Street consensus implies a 4.5% upside from current share levels, with more bullish forecasts pointing to potential gains of up to 15%. This optimism is reinforced by discounted cash flow analysis, which suggests STT’s shares may be trading at an estimated 15% discount to intrinsic value, providing valuation support for long-term investors.

Investing Takeaway

For income-focused investors, State Street offers a compelling blend of stability and growth. Its dividend profile is supported by a durable, fee-driven business model that generates consistent cash flows across market cycles, anchored by long-term client relationships and mission-critical services. This provides a strong foundation for ongoing dividend payments and steady increases over time. The company’s disciplined capital allocation, combined with improving operating leverage and expanding margins, further enhances its ability to sustain and grow shareholder distributions. As earnings become more diversified through technology, data, and platform-driven revenues, dividend durability should strengthen. For investors seeking a balance of reliable income and long-term growth potential, State Street stands out as a well-positioned compounder within the financial sector.

Dividend Investor Portfolio

Portfolio News

▣ ADP (ADP) reported its fiscal third-quarter results on April 29, delivering solid growth across its core businesses. Revenue rose 7% year-over-year to $5.9 billion, beating estimates and driven by continued strength in Employer Services, where revenue increased 6% on a constant currency basis, and in the Professional Employer Organization (PEO) segment, which grew 7% on higher average worksite employees. Adjusted EPS increased 10% to $3.37, surpassing estimates and outpaced revenue growth due to operating leverage and disciplined expense management. Adjusted EBIT margin expanded by 80 basis points to 30.2%, supported by productivity initiatives and higher interest income on client funds. The company also reported strong client retention of around 92% and solid new business bookings. Management reaffirmed its full-year outlook, expecting revenue growth of 6% to 7% and adjusted EPS growth of 10% to 11%, reflecting continued demand for payroll and HR outsourcing solutions.

▣ Amgen (AMGN) reported its first-quarter results on April 30, delivering steady growth supported by volume expansion and contributions from newer products. Revenue increased 6% year over year to $8.6 billion, driven by the inclusion of Horizon Therapeutics and continued strength in key brands such as Repatha and Evenity. Adjusted earnings per share rose 5% to $5.15, exceeding expectations, as higher revenues were partially offset by increased operating expenses related to integration and ongoing pipeline investments.

Product sales grew 4%, while volumes rose 9%, reflecting solid demand despite pricing pressure. Operating margin expanded significantly to 32.4%, improving by 17.4 percentage points. Free cash flow increased to $1.5 billion, supported by business performance and working capital timing. Management maintained its full-year outlook, projecting revenue of $37.8 billion and adjusted EPS of $22.4 at the midpoint, with share repurchases expected to remain below $3 billion.

▣ EOG Resources (EOG) is set to report its first-quarter results on May 6, with expectations pointing to steady earnings supported by resilient production and commodity price trends. Analysts forecast adjusted EPS of $3.23, while revenue is expected to come in around $6.1 billion.

The company enters the quarter with strong operational momentum, having consistently delivered earnings beats in recent periods. Production growth, supported by assets in key shale basins and contributions from recent acquisitions, remains a key driver, alongside stable natural gas pricing. Investors will focus on capital discipline, free cash flow generation, and shareholder returns, including its quarterly dividend of $1.02 per share, as indicators of sustained performance in a volatile energy environment.

▣ ExxonMobil (XOM) reported its first-quarter results on May 1, delivering mixed performance shaped by timing effects and commodity dynamics. Revenue came in at approximately $85.1 billion, rising modestly year-over-year and exceeding expectations, while adjusted EPS was $1.16, also ahead of estimates.

Reported net income was $4.2 billion, or $1.00 per share, down from the prior year, reflecting unfavorable timing effects and higher costs. Excluding these impacts, adjusted earnings reached $8.8 billion, highlighting underlying operational strength.

Cash flow from operations totaled $8.7 billion, supporting shareholder distributions of $9.2 billion, including $4.3 billion in dividends and $4.9 billion in share repurchases.

Overall, results reflected strong execution and production performance, partially offset by short-term volatility in downstream and trading-related earnings.

▣ IBM’s (IBM) ex-dividend date is May 08 with the dividend likely to be paid on June 10.

▣ Qualcomm (QCOM) reported its fiscal second-quarter results on April 29, delivering performance slightly ahead of expectations despite ongoing industry headwinds. Revenue came in at $10.6 billion, broadly in line with estimates but down about 3% year over year, reflecting weakness in the handset market amid memory supply constraints.

Adjusted EPS were $2.65, beating consensus forecasts, while GAAP EPS surged to $6.88, supported by a one-time tax benefit. Growth was driven by diversification, with automotive and IoT revenues rising strongly, partially offsetting a decline in handset-related sales.

The company returned $3.7 billion to shareholders during the quarter and continued to invest in AI and data center opportunities. Looking ahead, Qualcomm guided for third-quarter revenue of $9.6 billion and EPS of $2.20, both at midpoint, reflecting near-term demand uncertainty.

▣ VICI Properties (VICI) reported its first-quarter results on April 30, delivering steady growth supported by its long-term lease portfolio. Revenue increased 3.5% year-over-year to approximately $1 billion, while net income rose sharply by around 61% year-over-year to about $872 million, reflecting gains from leasing and financing activities.

Adjusted funds from operations (AFFO) came in at $0.61 per share, up about 5% from the prior year, highlighting stable cash flow generation. The company also reported EPS of $0.82, exceeding expectations, as its contractual rent escalators and high-quality tenant base continued to support performance.

Management raised its full-year AFFO guidance to $2.45 per share at midpoint, reflecting confidence in ongoing portfolio growth and capital deployment.

▣ Verizon Communications (VZ) reported its first-quarter results, delivering a mixed top-line performance but stronger-than-expected earnings and subscriber trends. EPS came in at $1.28, exceeding Wall Street expectations, while revenue totaled $34.4 billion, rising 3% year-over-year but coming in slightly below consensus estimates.

A key highlight was the company’s return to growth in its core wireless business, with 55,000 net additions in postpaid phone subscribers during the quarter. This marked the first increase in this category since 2013, and represented a significant reversal from the expected net loss of more than 88,000 subscribers.

Encouraged by improving operating momentum, management raised its full-year outlook and now expects earnings of around $4.90 per share at the midpoint, signaling confidence in its ongoing multi-year transformation strategy.

Recent Trades

None at the moment, although we are considering adding a stock to our portfolio when the market conditions allow for an attractive entry point. Stay tuned.

Portfolio Attributes

Dividend Portfolio Yield	Expected Dividend Growth	Expected Annual Income
3.94%	+6.07%	$6,148.93
Yield-on-Cost Adjusted, Weighted	Average Analyst 12-Month Growth Outlook	10K Per Stock at the Time of Purchase

Current Portfolio

Name	EX-Dividend Date	Payment Date	Yield on Cost	Annual DPS
Automatic Data Processing (ADP)	Jun 15, 2026	Jul 01, 2026	2.46%	$6.80
Amgen (AMGN)	May 15, 2026	Jun 05, 2026	3.27%	$10.08
BlackRock (BLK)	Jun 05, 2026	Jun 23, 2026	2.61%	$22.92
Bank of Nova Scotia (BNS)	Jul 02, 2026	Jul 29, 2026	5.98%	$3.21
EOG Resources (EOG)	Jul 16, 2026	Jul 30, 2026	3.06%	$4.08
ExxonMobil (XOM)	May 15, 2026	Jun 10, 2026	3.64%	$4.12
Honeywell International (HON)	May 18, 2026	Jun 08, 2026	2.39%	$4.76
IBM (IBM)	Aug 06, 2026	Sep 10, 2026	3.16%	$6.76
JPMorgan Chase (JPM)	Jul 03, 2026	Jul 31, 2026	3.43%	$6.00
Kroger (KR)	May 15, 2026	Jun 01, 2026	3.08%	$1.40
Cisco Systems (CSCO)	Jul 02, 2026	Jul 23, 2026	2.22%	$1.68
PepsiCo (PEP)	Jun 05, 2026	Jun 26, 2026	3.8%	$5.69
Philip Morris (PM)	Jun 29, 2026	Jul 15, 2026	6.06%	$5.88
Qualcomm (QCOM)	Jun 05, 2026	Jun 26, 2026	2.44%	$3.68
VICI Properties (VICI)	Jun 18, 2026	Jul 10, 2026	5.22%	$1.8
Verizon (VZ)	Jul 09, 2026	Aug 03, 2026	6.09%	$2.76

1
1

Click here for additional Newsletters from TipRanks’ Macro & Markets Research Analysis Team

Disclaimer

The information contained in this article represents the views and opinions of the writer only, and not the views or opinions of TipRanks or its affiliates and should be considered for informational purposes only. TipRanks makes no warranties about the completeness, accuracy, or reliability of such information. Nothing in this article should be taken as a recommendation or solicitation to purchase or sell securities. Nothing in the article constitutes legal, professional, investment, and/or financial advice and/or takes into account the specific needs and/or requirements of an individual, nor does any information in the article constitute a comprehensive or complete statement of the matters or subject discussed therein. TipRanks and its affiliates disclaim all liability or responsibility with respect to the content of the article, and any action taken upon the information in the article is at your own and sole risk. The link to this article does not constitute an endorsement or recommendation by TipRanks or its affiliates. Past performance is not indicative of future results, prices, or performance.

Category: Dividend