Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / Why Dividend ETFs Outperformed the S&P 500 This Week
Transcript
- Lucas: It's been a rough week for the Nasdaq — down about three and a half percent over the last five trading days. The S&P 500 is off one point three percent. But if you look at some of the big dividend ETFs, they're actually up. Luna: Yeah, I saw that. VYM is up one point four percent, and SCHD's up almost two percent. That's a pretty stark divergence. Lucas: It really is. And it tells you something about where money is flowing right now. Tech stocks are getting hit — there's that headline about Steve Eisman doubting AI, and a lot of big names like ASML and Micron are under pressure. Meanwhile, dividend ETFs are catching a bid. Luna: So is this a classic rotation out of growth and into value and income? Lucas: Exactly. It's a textbook defensive move. When the market gets jittery about valuations in tech, which are still pretty stretched despite the pullback, investors rotate into sectors with more predictable cash flows — consumer staples, healthcare, utilities, financials. And that's exactly what you get in a broad dividend ETF like VYM or SCHD. Luna: Right. And both of those ETFs have relatively low exposure to the tech sector. SCHD's top holdings are things like Coca-Cola, Pfizer, and Home Depot. Lucas: Right. VYM is similar. Its largest sector weightings are financials, healthcare, and consumer goods. So when tech sells off, these ETFs don't just hold up — they actually benefit from the money coming out of tech and into those more stable areas. Luna: And you've also got the bond market backdrop. The ten-year Treasury yield is at four point six nine percent, which is still historically high, but it's come down a bit from four point seven one earlier in the week. That probably helps dividend stocks stay attractive relative to bonds. Lucas: Absolutely. And the Fed's holding steady at three point six three percent. No rate cuts on the horizon, but no hikes either. That flat rate environment means dividend yields don't have to compete with a rising alternative. A stock like JNJ yields around three percent — that's competitive with the ten-year, especially if you think the dividend will grow. Luna: And we saw JNJ up over six percent this week. That's a big move for a stock that usually inches along. Lucas: Right, and it's not just JNJ. Verizon was up over eight percent. These are classic dividend plays that are suddenly getting a lot of attention. But I think the bigger picture is that broad ETF approach — you don't have to pick the winners. VYM gives you exposure to a hundred twenty or so high-dividend stocks, and it's up steadily while the rest of the market dips. Luna: So for listeners who might be nervous about their tech-heavy portfolios, this might be a good moment to think about balancing with some dividend ETFs. Lucas: Exactly. And the nice thing is that you get paid while you wait. The yield on VYM is around two point eight percent, and SCHD's a bit higher, near three point four percent. In a flat rate environment, that's real income. Luna: You know, speaking of the show — if our conversations about dividend investing have helped you think about your portfolio differently, there's a simple way to support us. If today's episode was worth a coffee to you, you can buy us one at buy me a coffee dot com slash fexingo. Lucas: And we mean that. It's listener support that keeps this show ad-free and focused on what matters. No pressure, just an option if you find value here. Luna: Exactly. And now back to the numbers. One thing I find interesting is the performance gap between SCHD and VYM this week. SCHD is up one point nine percent, VYM one point four. Why the difference? Lucas: It probably comes down to sector weights. SCHD has a higher allocation to healthcare and financials, which have been strong this week. It also has a quality screen that filters for companies with consistent dividend growth and strong fundamentals. VYM is more yield-focused, so it includes some higher-yielding but slower-growing stocks like utilities and telecoms. Luna: So in this rotation, the market is rewarding quality and growth potential even within dividend stocks. Lucas: Yes. Look at the components: SCHD's biggest holding is Coca-Cola, up two point six percent this week. That's not a huge move, but it's steady. Meanwhile, VYM's top holding is ExxonMobil, which is down a bit — energy is not getting the same love this week because oil prices are slipping. Luna: Right, and that's the nuance. Not all dividend ETFs are created equal. You have to know what's inside. Lucas: Exactly. But the broader takeaway is that dividend ETFs are proving their worth as a defensive anchor. In a week where the Nasdaq lost three and a half percent, being in VYM or SCHD would have kept you in positive territory. Plus, you're collecting dividends. Luna: And when you look at the yield curve — it's still slightly steepening. The ten-year minus two-year spread is about thirty-four basis points. That's a sign that the market expects some growth, but not inflation running away. That environment historically favors dividend-paying stocks over growth stocks. Lucas: Right. A steepening curve often means banks and financials do well, and both ETFs have significant exposure there. So there's a structural reason to expect this outperformance to continue, at least as long as the economic data doesn't shock. Luna: So for someone building a portfolio today, would you suggest just buying SCHD or VYM as a core holding? Lucas: I think they make a great core for the income portion. You pair it with some growth and maybe some bonds. But if you're looking for stability and cash flow, it's hard to beat a diversified dividend ETF right now. And this week's action just reinforces that. Luna: One last thing — the overall market is still near all-time highs. The Dow is only down a fraction. So this rotation is more about relative performance than a market crash. Lucas: Right. It's a healthy shift. Tech had a huge run, and now money is moving into areas that were neglected. Dividend investors who stayed disciplined are being rewarded. And that's a good reminder that diversification works over time. Luna: Great point. Thanks Lucas. Lucas: Thanks Luna. And thanks to our listeners. See you next time.