The sizzling performance of Magnificent 7 stocks, which include Amazon. com, Apple and Nvidia among others, has hit pause. And so has the insatiable appetite for expensive growth stocks.

Growth expectations for the U. S. economy this year have been slashed by many Wall Street analysts. Moreover, consumer and business confidence is eroding. No matter how Washington, D. C., tries to spin things, tariffs on imports are taxes that increase prices on goods and services.

The economic turbulence has changed market sentiment from jubilant to fearful. It has also dramatically reshaped the stock and exchange-traded fund landscape, shuffling the names of winners and losers.

After being left behind by U. S. growth equity ETFs over the past three years, dividend-paying funds, for instance, are now on the comeback trail.

Since dividend strategies can widely vary, let’ s examine a few ETFs whose differing strategies are quietly performing well.

Schwab U. S. Dividend Equity ETF( SCHD)

Unlike some funds that focus on high dividends alone, this Schwab fund screens for the quality and sustainability of dividends. The fund is tied to the Dow Jones U. S. Dividend 100 Index, a composite index of 100 U. S. dividend payers.

The fund’ s approach has helped it achieve a 1.17 % year-to-date gain while the iShares Russell 1000 Growth ETF slipped by 8.06 %. Moreover, almost half of the Schwab dividend fund’ s industry exposure is concentrated in three defensively oriented groups: financials, healthcare and consumer staples.

With around $ 67 billion, the Schwab fund is the second largest dividend ETF by assets, and it charges an expense ratio of 0.06 %.

Amplify CWP Enhanced Dividend Income ETF( DIVO)

Instead of relying on dividends alone, many of the newer income-focused ETFs also enjoy the synthetic income they get from the sale of covered call options. This is the strategy used by the Amplify CWP Enhanced Dividend Income ETF.

Since the start of the year, the fund has logged a modest 0.16 % gain. However, its current annual distribution rate as of late February was 4.78 %, and it pays monthly income. The disadvantage of selling covered calls, of course, is that they limit the upside potential of the underlying stocks held inside the portfolio. But this is less of a concern during a choppy or declining stock market environment.

According to Amplify’ s literature, the fund seeks to provide gross annual income of approximately 2 % to 3 % from dividend income and 2 % to 4 % from option premiums. Keep in mind that the Amplify fund is an actively managed ETF, which is why it has a higher expense ratio than peers at 0.56 %.

WisdomTree U. S. High Dividend Fund( DHS)

Since the start of the year, this Wisdom- Tree fund has gained an impressive 4.48 %. It also carries a 30-day SEC yield near 3.65 %. Not bad, considering that S & P 500 funds have declined by about 4 %.

The WisdomTree fund delivers a unique spin on dividend strategies. While the fund is linked to an index, it has elements of quasi-active management. For example, it screens dividend stocks using three factors: their value, quality and momentum. The end result is a dividend weighted index of roughly 300 to 400 stocks.

The fund offers advisors and dividend-focused investors a dividend investing approach that is rules-based, but not overly rigid.

History

From 1940 to 2023, 34 % of the S & P 500’ s historical return was attributed to dividends. Of course, nobody knows if future dividend contributions to the index will be that high. But if equity returns ahead are expected to be lower, we can say with assurance that dividends will play a significant role in future returns. A comeback of dividend income ETFs could be in the works. Stay tuned!

— Ron DeLegge

APRIL 2025 | FINANCIAL ADVISOR MAGAZINE | 9