3 Dividend ETFs to Lock In Before Summer Volatility Picks Up
Key Points
Oil prices and inflation have moved significantly higher, creating an increased risk of economic slowdown later this year.
Many portfolios still tilt heavily toward tech and growth stocks. Shifting some capital to dividend ETFs could mitigate some downside risk.
These three dividend ETFs can be used either individually or collectively, given their differing approaches to stock selection.
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The summer season on Wall Street has a reputation for being a quieter, lower-volatility period. People are on vacation. They're enjoying the nice weather. That kind of environment tends to mitigate the risk of conditions falling apart. Right?
In reality, stocks are vulnerable at any time of the year. For example:
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- 2025's Liberation Day tariff implementation in April kept volatility at least modestly elevated well into June.
- In August 2024, the pullback stemming from the unwinding of the yen carry trade caused the VIX to spike as high as 65.
- During the 2022 bear market, market volatility remained above average for most of the year as the Federal Reserve aggressively raised interest rates.
This year, with the Iran war still in the news, inflation rising to multiyear highs, and the markets bracing for a potential interest rate hike, the stage is set for another round of volatility.
Exchange-traded funds (ETFs) specializing in dividends usually offer a more conservative equity option in these environments, with lower risk and better downside protection. So many portfolios right now are heavy with tech and growth stocks. Rebalancing some capital into a top-tier dividend ETF could be the right move for anxious investors.
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1. Schwab U.S. Dividend Equity ETF
The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) has enjoyed a strong comeback in 2026. The U.S. equity market rotation at the beginning of the year, which saw money flow into value, low-volatility, and defensive stocks, hit this fund's sweet spot after three rough years.
At one point earlier this year, it was the best-performing U.S. dividend ETF in the marketplace. April's tech rebound has brought the fund's performance back to earth a bit, but its 16% year-to-date return is still double that of the Vanguard S&P 500 ETF.
The Schwab U.S. Dividend Equity ETF's focus on high-quality, financially healthy companies with long dividend histories and above-average yields meets every selection criterion investors should want. It aims to identify the best-of-the-best dividend stocks and deserves consideration in almost any portfolio, at any stage. For those looking to take a little risk off the table while maintaining upside potential, this could be the first place to look.
2. Vanguard Dividend Appreciation ETF
The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is an interesting choice for investors who want to keep above-average performance potential no matter which way equities move.
The strategy to target large-cap stocks with 10-year-plus dividend growth histories generally produces a portfolio of more mature, defensive stocks. However, the fund's choice to weight its holdings by market cap ends up lifting the qualifying megacap tech stocks to the top of the portfolio.
The Vanguard Dividend Appreciation ETF's top three holdings currently are Broadcom, Apple, and Microsoft. That's not typical of what you find in many dividend ETFs, but it does offer some additional upside should the tech sector continue rallying this summer.
3. iShares Core High Dividend ETF
High-dividend-yield ETFs like the iShares Core High Dividend ETF (NYSEMKT: HDV) have been doing better than traditional dividend growth funds because of the success of energy and other cyclical stocks this year.
But the iShares Core High Dividend ETF's inclusion of two quality measures from Morningstar helps ensure it's not just blindly reaching for yield. The 2.9% yield isn't as high as some others you'll find in the dividend ETF space. But the tilt toward higher quality is an acceptable trade-off, considering some of the risks the U.S. economy is facing right now.
These three funds could be used in a portfolio either individually or collectively. Given that one focuses on high yield, one on dividend growth, and the other multifactor, there's not a lot of overlap in strategy. The common factor, however, is a lower volatility profile that emphasizes quality.
If some of the market's potential risks become reality this year, dividend ETFs could help serve as a safe shelter.
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David Dierking has positions in Apple, Schwab U.S. Dividend Equity ETF, and Vanguard Dividend Appreciation ETF. The Motley Fool has positions in and recommends Apple, Broadcom, Microsoft, Vanguard Dividend Appreciation ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
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