For many investors, dividend stocks are always appealing due to the income they provide from corporate cash flow, offering stability amidst the fluctuations in stock prices. Currently, with the stock and bond markets experiencing increased volatility, interest in dividend stocks is rising, bridging the gap between equity growth and yield.
According to ETF Action, there are now over 100 exchange-traded funds (ETFs) dedicated to dividend stocks, with most assets concentrated in major index funds like the Vanguard Dividend Appreciation ETF (VIG), Schwab US Dividend Equity ETF (SCHD), and the iShares Core Dividend Growth ETF (DGRO).
Top Dividend ETFs by Assets
- Vanguard Dividend Appreciation ETF: $81 billion
- Schwab U.S. Dividend Equity ETF: $65 billion
- Vanguard High Dividend Yield Index ETF: $54 billion
- iShares Core Dividend Growth ETF: $28 billion
- SPDR S&P Dividend ETF: $19 billion
The growing landscape of actively managed ETFs has led to the emergence of actively managed dividend ETFs like the T. Rowe Dividend Growth ETF (TDVG), which aims to identify high-quality dividend payers for better capital appreciation and income. Launched in 2020, TDVG has over $700 million in assets.
Diversification in Tech Exposure
Investors wary of tech stocks due to recent market volatility may find that they cannot avoid exposure in dividend funds, given that top tech companies are also significant dividend payers. TDVG’s leading holdings include Apple and Microsoft, each around 5%, and it maintains a roughly 19% exposure to the tech sector, lower than the S&P 500’s near 30%.
Tim Coyne from T. Rowe Price emphasized that the trend toward dividend-paying investments is strengthening, noting that over $10 billion has flowed into dividend ETFs this year, which keeps pace with other investment strategies, though value and growth ETFs have attracted slightly more.
Performance and Caution on Yield
Top dividend ETFs by year-to-date performance highlight the need to look beyond yield alone. High-yield funds can be at risk of dividend cuts, while consistent dividend payers should align with long-term capital appreciation goals. Active management in ETFs can help navigate market volatility, making it essential to seek balance rather than chase high yields amid changing market conditions.
