1 Dividend ETF to Buy Hand Over Fist and 1 to Avoid

It's 2026 and we're not just talking about tech stocks anymore!

The market has broadened considerably and we're seeing previously unloved areas of the market, such as energy and small caps, finding new life again. More importantly for income seekers, dividend stocks have also begun outperforming the S&P 500 (SNPINDEX: ^GSPC).

That doesn't mean every dividend ETF looks attractive right now. Strategies that focus on durable, quality stocks are probably built better for this environment if we begin seeing a slowdown. Funds that rely on high yielders or those companies whose payouts are less reliable should still be approached with caution.

For me, there's one particular ETF that fits each category.

Image source: Getty Images.

Buy hand over fist: Vanguard Dividend Appreciation ETF

The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is an old favorite for many investors. After applying a few liquidity screens, it targets U.S. companies that have increased their annual dividend for at least 10 straight years. Then it eliminates the top 25% of yields to avoid some of the issues I mentioned earlier. That ends up producing a strong core of dividend payers backed by strong cash flows and healthy balance sheets that can serve as a portfolio cornerstone.

With the labor market cooling and geopolitical tensions rising, we've already seen investors positioning their portfolios more defensively. The composition of returns in the early stages of 2026 suggests a regime change from what's driven the market over the past few years. This ETF is positioned to capture that.

One thing to be aware of with this fund: technology is still its top sector holding at 27%. I've discussed before about how I don't really like the cap-weighting strategy of the fund. It ends up pulling the biggest companies to the top regardless of yield or dividend history.

The current top three holdings -- Broadcom, Microsoft, and Apple -- are all tech stocks with yields of under 1%. The rest of the top sector holdings, including financials (22%), healthcare (17%), industrials (11%), and consumer staples (10%), represent a much different composition than that of the S&P 500 and show that the Vanguard Dividend Appreciation ETF can be an adequate diversifier as well.

Avoid: Global X SuperDividend ETF

The Global X SuperDividend ETF (NYSEMKT: SDIV) is a great example of why investors shouldn't be seduced by a high yield. It doesn't necessarily make it a bad investment, but those yields usually come with more caveats and warnings than one might be aware of.

This ETF tracks an index of 100 of the highest-yielding stocks in the world with the end result getting equally weighted. That's it. No qualifications. No consideration for dividend history or sustainability. No quality cross-checks. Just the highest-yielding stocks in the world.

The sole focus on yield ends up creating a portfolio of securities that's heavily overweight to traditionally high-yielding areas of the market. That includes financials, real estate, energy, mortgage REITs, and business development companies (BDCs). These can be significantly riskier, more interest rate-sensitive, and more cyclical than the S&P 500. Plus, the current 70% allocation to international stocks might be more than many people are comfortable with.

In environments with above average inflation and elevated yields, these types of companies can get hit the hardest. This ETF could be OK as a small allocation in a broader dividend portfolio if you're trying to give yourself a little yield boost. But macro conditions look more like a hinderance than a help here.

David Dierking has positions in Apple and Vanguard Dividend Appreciation ETF. The Motley Fool has positions in and recommends Apple, Microsoft, and Vanguard Dividend Appreciation ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.