Fears of an impending recession may be fading, but economists are still expecting tepid GDP growth for the year. The rhetorical tariff tug-of-war isn’t helping sentiment or certainty. Markets are set up for a scenario that is unlikely to generate gratifying risk-adjusted capital returns in 2025. The stock market essentially suffered a bear market correction in April but has since recouped the losses. Stronger earnings and a resilient economy have just prompted several shops on Wall Street to raise year-end forecasts for the S&P 500. But even the most bullish estimates out there are still lukewarm.
Investors can no longer simply ride out the market rally or count on capital appreciation for returns. Instead, they’re seeking steadier streams of recurring income. Right now, dividend ETFs are especially attractive, because they provide a steady flow of income to investors while offering diversification across sectors and industries. They offer the promise of consistent income and potential stability in trying times.
Stubbornly high inflation has been a sticking point for the broader markets. Companies with a history of growing their dividends can also potentially outpace inflation over the long term, serving as a hedge and helping preserve purchasing power. The income stream itself also provides cash flow that can adjust to rising costs. Dividend ETFs pay out regular distributions, making them an attractive choice for retirees or income-focused investors. And lately, investors have exhibited a strong desire for low volatility and high yield – as shown by strong flows into short-duration and option-enhanced products.
These Dividend ETFs Are Darlings
Vanguard owns two of the top three most popular dividend ETFs this year from a flows perspective – the Vanguard International High Dividend Yield ETF (VYMI) which has accrued $1.4 billion in net inflows. For those seeking out an extra dose of sector diversification, the ALPS Sector Dividend Dogs ETF (SDOG) looks to offer equal weight exposure to the five highest-yielding stocks across 10 sectors in the S&P 500 with equal allocation to each sector. The $1 billion fund seeks to apply the “Dogs of the Dow” theory – a popular contrarian approach that looks at the highest-yielding dividend stocks in the Dow. The method has generated mixed results in the past but is proving favorable again once more in 2025. Right now, the fund’s top five holdings are STX Seagate Technology Holdings, Philip Morris International, Darden Restaurants, Newmont Mining and IBM.
Going for Growth
Apart from the usual dividend aristocrats (which invest in companies that have consistently grown their dividends over the years), several different approaches have emerged to add a spin on the traditional dividend strategy.
The Vanguard Dividend Appreciation ETF (VIG) is the second most popular dividend ETF this year with $940 million. One popular dividend growth ETF with a quality tilt has been the WisdomTree U.S. Quality Dividend Growth Fund (DGRW) – which has enjoyed north of $1.5 billion in net inflows over the past year. The $15 billion fund offers access to large-cap dividend-growing companies by applying quality and growth screens. So far this year, DGRW has accumulated nearly $500 million in new money. The fund is meant to either serve as a substitute for large-cap quality strategies or supplement high-yielding dividend strategies – offering a combination of quality and yield. More than one fifth of the portfolio is held in technology stocks, with 15% allocated to industrials and 13% held in consumer staples. Top holdings include Microsoft, ExxonMobil, Apple, Nvidia and Procter and Gamble.
For a more active approach, T. Rowe Price offers its Dividend Growth ETF (TDVG), which screens for stocks that either already have a strong track record of paying dividends or are expected to pay dividends over time – even if they’re not currently doing so. In that sense, the strategy benefits from both dividend income and growth prospects. Currently, the fund is heavily weighted in technology and financials, followed by industrials and health care. Top holdings include Microsoft, Apple, Visa, JPMorgan Chase and Broadcom.
Lastly, Simplify is slated to offer a brand-new suite of dividend growth ETFs this summer – based on three float-market cap weighted indices across U.S. large caps, developed markets ex-U.S. and small caps.
Pillar Behind a Balanced Portfolio
Dividend ETFs represent a powerful tool for investors seeking to build sustainable income streams, enhance portfolio stability, and harness the long-term power of dividends. Their inherent diversification, transparency, and cost-efficiency make them an accessible and attractive option for both income-focused retirees and growth-oriented investors looking to bolster portfolio resilience and protect themselves from further shocks. When used wisely as a core component or a strategic satellite holding within a diversified portfolio, dividend ETFs can provide a steady current of income and contribute significantly to achieving long-term financial goals, proving that sometimes, slow and steady truly does win the race.
For more news, information, and analysis, visit VettaFi | ETF Trends.
VettaFi LLC (“VettaFi”) is the index provider for SDOG and Simplify’s upcoming ETFs, for which it receives an index licensing fee. However, SDOG and SImplify’s upcoming ETFs are not issued, sponsored, endorsed, or sold by VettaFi, and VettaFi has no obligation or liability in connection with the issuance, administration, marketing, or trading of SDOG and Simplify’s upcoming ETFs.
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