Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / How Dividend ETFs VYM SCHD and DVY Diverge in Mid-2026
Transcript
- Lucas: So, if you own any of the big dividend ETFs, you've probably noticed they are not moving in lockstep this week. Through Wednesday June third, VYM is up about one point four percent over the last five trading days, while SCHD and DVY are both down — SCHD off about eight tenths of a percent, DVY down nine tenths. Luna: That's a pretty meaningful divergence for three funds that are often lumped together as 'dividend ETFs'. What's driving it? Lucas: It really comes down to sector composition and what each fund is screening for. VYM tracks the FTSE High Dividend Yield Index — it's a broader value play with heavier weight in financials and energy. SCHD and DVY are more focused on dividend durability and growth, which tilts them toward consumer staples and health care. And those sectors have been getting hammered this week. Luna: Yeah, I saw Procter & Gamble is down nearly four percent in the last five days. Johnson & Johnson off three point three percent. Coke down two percent. Lucas: Exactly. Those are all top holdings in SCHD and DVY. When staples and health care take a hit, those ETFs feel it more. VYM holds some of those names too, but it's got a bigger cushion from financials and energy, which have held up better. The S&P 500 is basically flat over the same period, and the Dow is unchanged — so this isn't a macro meltdown. It's sector rotation. Luna: So the question is: why are staples getting sold off right now? I mean, the ten-year Treasury yield dipped a bit to four point four six percent, and the two-year is flat at four point zero five. The spread is still around forty one basis points. That's not exactly a screaming signal for defensive stocks. Lucas: Right, the yield curve is actually flattening slightly — the ten-year is down a basis point while the two-year is flat. That usually favors value over defensive growth, and it might be part of the story. But I think the bigger factor is positioning. Staples had a strong run earlier this year as a safe haven during the tariff uncertainty. Now that some of that noise is settling, money is rotating back into tech and cyclicals. Luna: So this divergence is actually a reminder that not all dividend ETFs are created equal. If you're just buying based on yield, you might not realize how different the underlying exposures are. Lucas: Exactly. And that's worth unpacking because a lot of income investors treat these funds as interchangeable. VYM's current yield is around three point one percent, SCHD is about three point four, DVY is close to three point nine. But the total return story this week is completely different. And over the longer term, the methodology matters even more. Luna: Can you walk us through the methodology differences quickly? I think a lot of listeners own one of these and might be wondering why theirs is lagging. Lucas: Sure. VYM is the simplest — it screens for stocks with above-average dividend yields, then weights by market cap. So you get a lot of big banks, oil majors, and some old-school industrials. It's cheap, expense ratio of six basis points, and it's basically a value fund with a dividend tilt. SCHD uses a more complex formula: it ranks stocks by yield, return on equity, dividend growth rate, and payout ratio sustainability. That pushes it toward quality companies with consistent dividend growth — think Coca-Cola, Pepsi, Pfizer, Home Depot. Luna: And DVY is the Dow Jones Select Dividend Index, right? Lucas: Right. DVY screens for the highest dividend-yielding stocks in the Dow Jones U.S. index, but with filters for dividend per share growth and payout ratio. It ends up with a heavier weight in utilities, telecoms, and real estate — companies like Verizon, Altria, and a lot of electric utilities. That's why its yield is higher, but it also means it's more sensitive to interest rate moves. With the ten-year still around four point four six percent, utility dividends look less attractive than they did when yields were lower. Luna: So for someone building a dividend portfolio right now, does it make sense to pick one of these, or blend them? Lucas: I think blending is actually smart, but you need to be intentional. If you're in the accumulation phase and care about total return, SCHD's quality tilt has historically outperformed over long periods. If you want current income and can tolerate more sector concentration, DVY gives you higher yield but with more volatility. VYM is kind of the middle ground — broad, cheap, and reliable. The key is knowing what you own and why. Luna: And right now, the market is testing that. It's easy to hold a fund when everything is going up. Weeks like this reveal the real character of your portfolio. Lucas: Absolutely. And it's conversations like this — digging into the specifics — that we try to bring to the show every day. We don't run ads, we don't sell anything, and that's intentional. If these money conversations have helped you think about a decision differently, the best way to support that is at buy me a coffee dot com slash fexingo. Luna: Yeah, it's a simple way to keep the show ad-free and focused on the details that actually matter. We really appreciate everyone who chips in. Lucas: Alright, back to the divergence. One thing I want to flag is that DVY's underperformance isn't just about utilities — it's also got a big position in real estate investment trusts, like Realty Income, ticker O, which is down almost three percent in the last five days. REITs are getting squeezed by the higher for longer rate environment. Luna: And O is a huge holding in many dividend-focused portfolios. So if you own DVY or something similar, you're getting that exposure whether you want it or not. Lucas: Right. And that's the trade-off with any sector-concentrated ETF. The beauty of VYM this week is that its financials and energy weights are providing a buffer. Banks like JPMorgan and Wells Fargo are actually up slightly as the yield curve steepens a tiny bit. Energy stocks are holding steady with oil around seventy dollars. So VYM is benefiting from diversification that SCHD and DVY don't have right now. Luna: But that doesn't mean VYM is always the better choice. In a market where staples and health care are outperforming, SCHD would lead. It's cyclical. Lucas: Exactly. And that's the takeaway — there's no one-size-fits-all dividend ETF. You have to match the fund's sector profile to your own outlook. If you think the next six months will see continued rotation into cyclicals, VYM might be your friend. If you expect a flight to quality, stick with SCHD. If you need maximum yield and can stomach the volatility, DVY has its place. Luna: And for listeners who are building their own portfolios, you can replicate some of these tilts with individual stocks. But the ETFs make it easy to get diversified exposure with one trade. Lucas: True. And the expense ratios are so low now — VYM at six basis points, SCHD at six, DVY at thirty eight — that the fee difference isn't a huge deal. It's really about the sector bet you're making. So this week's divergence is a good stress test for your thesis. If you're surprised by how your ETF is behaving, that's a signal to revisit why you bought it in the first place. Luna: Great point. And we should also mention that dividend growth is still strong for most of these holdings. Just because the stock price dips doesn't mean the dividend is at risk. Lucas: Right. Procter & Gamble's payout ratio is under sixty percent, and they've raised dividends for over sixty years. Johnson & Johnson has a fifty-year streak. So the sell-off might actually create a better entry point for income investors who are dollar-cost averaging. But you have to separate price action from dividend health. Luna: Absolutely. So to sum up: VYM is winning this week because of its value tilt, but SCHD and DVY aren't broken — they're just reflecting different sector exposures in a market that's rotating. Lucas: Exactly. And if you want to see how these three ETFs track over the rest of the month, keep an eye on the ten-year yield and the relative performance of financials versus staples. That's the engine behind the divergence. We'll check back in a few weeks to see if the trend continues or flips. Luna: Sounds like a plan. Thanks, Lucas. Lucas: Thanks, Luna. That's it for today.