Latest / Dividend Investing with Fexingo: Income Stocks, Yield, and Long-Term Cash Flow Portfolios / The Quiet Shift Inside Dividend ETFs in July 2026
Transcript
- Lucas: So if you own VYM or SCHD — and a lot of dividend investors do — there's something happening inside those funds that you might not have noticed. It's not a dividend cut, it's not a fee hike. It's a sector shift. Luna: A sector shift meaning the ETFs are quietly moving away from the classic dividend sectors? Lucas: Exactly. Take VYM, the Vanguard High Dividend Yield ETF. Ten years ago, financials and consumer staples made up over 40 percent of the fund. Technology was maybe 8 percent. Fast forward to this week — July 2026 — technology is now over 18 percent. Healthcare has also crept up. Meanwhile, the traditional dividend stalwarts like utilities and telecom have actually shrunk as a share. Luna: Is that just because tech stocks have appreciated more, so they automatically take a bigger weight, or is Vanguard actively rebalancing? Lucas: It's a bit of both. The index these ETFs track — FTSE High Dividend Yield for VYM, Dow Jones U.S. Dividend 100 for SCHD — they screen for dividend yield and quality. But as tech companies like Microsoft and Apple started paying meaningful dividends, they qualified. And because their market caps are enormous, they naturally become larger positions. Luna: So the ETF is still picking high-dividend stocks, but the universe of high-dividend stocks has changed. Lucas: Right. And this matters for income investors because the risk profile shifts. A portfolio heavy on utilities and consumer staples behaves differently in a rising rate environment than one with 20 percent tech. We saw this play out just last week — the 10-year Treasury yield ticked up to 4.49 percent as of July 2nd. In the past, that would have crushed dividend stocks. But VYM was up 1.1 percent over five days, SCHD up 1 percent. Not bad. Luna: Part of that resilience might be the tech exposure. Tech stocks have been less sensitive to rising bond yields because their growth profiles are different. Lucas: That's the argument. But it also means you're getting less of the defensive, steady-eddy dividend profile that investors might have signed up for. If you bought VYM ten years ago thinking you were getting a conservative income fund, today you're holding a fund with a 20 percent tech allocation. That's not necessarily bad — but it's different. Luna: And what about SCHD? I know that fund has a quality screen. Is it facing the same drift? Lucas: SCHD has actually been more aggressive on the tech side. As of mid-2026, technology is its largest sector at about 22 percent. Healthcare is another 18 percent. So together, tech and healthcare make up 40 percent of the fund. That's a big change from five years ago when financials and consumer defensive dominated. Luna: So for someone who wants true dividend safety — like utilities, telecom, consumer staples — neither VYM nor SCHD is really that anymore. Lucas: No, they're not. And that's not a judgment call. It's just a fact. The question is whether investors are aware of it. Because if you're relying on these ETFs for income in retirement, you might be taking on more equity risk than you realize. And that risk shows up during drawdowns. In 2022, when tech got hammered, SCHD fell about 12 percent. That's not catastrophic, but it's more than a pure utility fund would have dropped. Luna: But on the flip side, the dividend growth from tech companies has been strong. Microsoft has raised its dividend for over 20 consecutive years. Apple started later but has been increasing rapidly. Lucas: Absolutely. And that's the trade-off. You get higher dividend growth potential, but you also get more volatility. The yield on VYM right now is around 2.8 percent. That's competitive with the 10-year Treasury at 4.49 percent? No, it's not. But you're buying the expectation that dividends grow over time. The question is whether that growth compensates for the extra risk. Luna: And the extra risk includes not just price volatility, but also the possibility that if rates stay high, these tech-heavy dividend ETFs could underperform for a while. Lucas: Exactly. So what should an investor do? First, check the actual holdings of your ETF. Don't just look at the name or the yield. Look at the top ten holdings and the sector breakdown. You might be surprised. Second, decide if that allocation matches your income needs and risk tolerance. If you want pure income without tech exposure, you might need a different vehicle — like a utility ETF or a individual dividend aristocrats. Luna: There's also the option of using a dividend growth ETF that explicitly screens for dividend growth rather than just yield. That would capture the tech companies anyway, but at least you know what you're getting. Lucas: Right. Something like DGRO or NOBL. They have different methodologies. But the key point is: don't assume your dividend ETF is what it was five years ago. Markets change, indexes change, and your portfolio should be a conscious choice, not a legacy of decisions you made years ago. Luna: Honestly, if this conversation helped you think about your own ETF holdings, that's exactly the kind of clarity we try to bring. And if it was worth a coffee to you, there's a link at buy me a coffee dot com slash fexingo. No pressure, just a way to keep the show ad-free. Lucas: Yeah, we really appreciate that. It's listener support that keeps us independent and focused on what matters for your portfolio. And speaking of what matters — let's talk about one more tool you can use to check your ETF's true sector exposure. Lucas: Most fund providers publish a full list of holdings on their website. For VYM, Vanguard updates it daily. You can literally copy-paste the top 20 stocks into a spreadsheet and calculate the sector breakdown yourself. It takes 15 minutes. Luna: Or you can use ETF.com or Morningstar. They show the sector weightings in a pie chart. It's even faster. Lucas: Exactly. So my exercise for listeners this week: pick one dividend ETF you own. Look up its current sector allocation. If tech and healthcare are more than 30 percent combined, ask yourself — is that what I want? If yes, great. If not, it might be time to adjust. Luna: And don't just look at the yield. A 3 percent yield from a volatile tech stock is not the same as a 3 percent yield from a regulated utility. The utility's earnings are more predictable, so the dividend is safer. Lucas: That's the core insight. Yield is not safety. And with Treasury yields above 4.4 percent, every dividend investor should be asking: am I being compensated enough for the risk I'm taking? If the answer is no, there are alternatives — from CDs to bond ladders to preferred stocks. But that's a topic for another episode. Luna: Alright, so bottom line: check your ETF's sector mix, understand what you own, and make sure your income portfolio still fits your plan. Lucas: Well said. Next time we'll dig into one specific alternative — preferred stocks and how they behave when the yield curve is steep. That's a whole different animal.