Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / How Dividend ETFs Are Shifting to Mid-Caps in June 2026
Transcript
- Lucas: So the S&P 500 hits a new all-time high this week, closing above 7,500 for the first time, and yet some of the most popular dividend stocks are actually down over the past five days. You've got Coca-Cola off more than 3 percent, Verizon barely positive. That gap is getting hard to ignore. Luna: It's almost like the market is telling us something about where income investors should be looking right now. And when I check the ETFs, Vanguard's High Dividend Yield ETF — ticker V-Y-M — is up 2 percent in the same period. That's not nothing. Lucas: Right, and it's actually outpacing the S&P 500's 3.4 percent weekly gain? No, sorry, it's a bit behind the broad index, but still strong. The point is, when you peel back the hood on VYM, you see a subtle shift that's been happening under the radar. The fund has been quietly increasing its exposure to mid-cap stocks. Luna: Mid-caps? That's interesting because most dividend investors default to large caps. You think of Johnson & Johnson, Procter & Gamble, those names. What's the rationale? Lucas: It's about yield plus growth. Large-cap dividend stocks have been bid up so much that their yields are compressed. Johnson & Johnson yields around 2.8 percent, Procter & Gamble about 2.4. Meanwhile, there's a cohort of mid-cap companies — think regional banks, industrial firms, some healthcare — that yield 3.5 to 4.5 percent and have room to grow dividends faster. The ETF rebalancing captures that. Luna: And SCHD, the Schwab U.S. Dividend Equity ETF, is up only 0.8 percent this week. So it's not participating as much. Why the divergence? Lucas: SCHD has a stricter quality screen — it focuses on dividend growth and financial health, which tends to favor larger, more established companies. That's great for stability, but in a market where small and mid caps are roaring — the Russell 2000 is up 3.7 percent this week — SCHD's large-cap tilt holds it back. VYM, on the other hand, has a more generous definition of 'high dividend,' so it picks up more mid-cap names. Luna: So the rotation into mid-caps is partly a function of the ETF methodology. But is it also a reflection of the macro environment? We've got the 10-year Treasury at 4.48 percent, the 2-year at 4.09 percent. That's a steep curve, historically. Lucas: Exactly. A steepening yield curve — the spread between the 10-year and 2-year is now 40 basis points, up from 39 just last week — is typically a sign that the economy is growing. Mid-cap companies tend to be more domestically focused and more sensitive to economic growth. So they benefit disproportionately. And because they're smaller, they can grow earnings faster, which supports dividend growth. Luna: So if I'm a dividend investor, and I look at my portfolio, how do I know if I'm getting enough mid-cap exposure? I mean, most people just buy one or two ETFs. Lucas: You have to look under the hood. VYM's top holdings still include JPMorgan, Johnson & Johnson, Exxon — but if you scroll down to the top 50, you'll find names like Gilead Sciences, which is more large-cap, but also maybe a regional bank like U.S. Bancorp. The key metric is the weighted average market cap. For VYM, it's around 120 billion. That's mid to large. For SCHD, it's closer to 180 billion. So VYM has a more pronounced mid-cap tilt. Luna: And DVY, the iShares Select Dividend ETF, is up 1 percent this week. That one screens for high dividend yield plus a consistent dividend history. I bet it has even more mid-cap weight. Lucas: You're right. DVY's weighted average market cap is actually lower, around 80 billion. It holds a lot of utilities, regional banks, and even some MLPs. That's why it yields around 3.6 percent, which is competitive in this environment. The trade-off is volatility — mid-caps can drop harder in a downturn. But in a growth phase like we're in, they can deliver both income and appreciation. Luna: So the takeaway for today might be: don't just assume a dividend ETF is diversified across market cap. Check the index methodology. And if you want to overweight mid-caps, VYM or DVY might be better choices than SCHD right now. Lucas: Exactly. And we should say, this isn't a recommendation to sell anything. But it's worth understanding what you own. Because when the market rotates — and it is rotating, even this week — your portfolio's composition determines whether you ride the wave or get left behind. Luna: Speaking of understanding what you own, a lot of you listening have asked how we keep this show going without ads or sponsors. It's pretty simple: a small group of listeners chip in monthly at buy me a coffee dot com slash fexingo. That's it. No big ad deals, no selling your data. Just people who find value in these conversations. Lucas: Yeah, and that support means we can keep drilling into stuff like ETF methodology and yield curve dynamics without trying to sell you anything. If our money conversations have helped you think about a decision differently, that's the whole point. No pressure, just thanks to those who already make it possible. Luna: Alright, back to the data. One thing I want to watch is whether this mid-cap momentum continues if the Fed holds rates steady. The Fed Funds rate is effectively at 3.63 percent, and Chair Warsh is expected to keep the dot plot under wraps this week. That could mean rates stay higher for longer. Lucas: Higher for longer actually favors dividend stocks that can grow their payouts. Mid-caps with pricing power and strong free cash flow are well positioned. So I think this rotation has legs. In fact, I'd argue that dividend investors who ignore mid-caps are leaving yield on the table. Luna: And maybe that's the real story of June 2026: income isn't just about the highest yield, it's about where the growth is. Thanks for listening, everyone. We'll be back with more on Thursday.