Why dividend stocks may be more like bonds in a volatile market

For many investors, it’s always a good time for dividend stocks, with the income component coming to shareholders from the cash flow of corporations providing peace of mind regardless of short-term ups and downs in stock prices. But now, as the stock and bond markets both see sharp spikes in volatility, dividend stocks may appeal to an even wider group of investors, playing more of a role in-between equities growth and yield.   

There are now over 100 exchange-traded funds focused on dividend stocks, according to ETF Action, though the vast majority of assets are concentrated in the biggest index fund ones, including Vanguard Dividend Appreciation ETF (VIG), Schwab US Dividend Equity ETF (SCHD), and iShares Core Dividend Growth ETF (DGRO). 

Top 5 dividend ETFs, by total assets under management

1. Vanguard Dividend Appreciation ETF: $81 billion
2. Schwab U.S. Dividend Equity ETF: $65 billion
3. Vanguard High Dividend Yield Index ETF: $54 billion
4. iShares Core Dividend Growth ETF: $28 billion
5. SPDR S&P Dividend ETF: $19 billion

Source: ETFAction.com

As the actively managed ETF space continues to grow, there are a growing number of actively managed dividend ETFs, such as the T. Rowe Dividend Growth ETF (TDVG), with the managers betting that they can identify higher-quality dividend payers that generate a better mix of capital appreciation and yield.

TDVG was one of the first ETFs that T. Rowe Price, which is known for its traditional mutual funds, launched in 2020. The company now has 19 ETFs in all and $13 billion in ETF assets. The dividend ETF has over $700 million in assets.

Can’t avoid but can limit tech

Investors looking to avoid tech stocks given the recent market rough patch, though they did bounce back sharply last week, can’t do that in this dividend fund, with the biggest tech companies now also the biggest dividend payers given how cash-rich and reliable they have become. TDVG’s top holdings are Apple and Microsoft, each at around 5%. They are also among the top holdings in Vanguard’s VIG and iShares’ DGRO.

Investors who expect the overall tech sector ride to continue to be bumpy can get exposure to some of the tech industry’s biggest dividend payers while not overweighting the tech sector as a whole, like the S&P 500 Index, through dividend ETFs like TDVG.

“We’ve finally reached a point in the cycle where overweighting the ‘Mag 7’ all of them, has hit its limit,” said Todd Sohn, head of ETFs at Strategas, on last week’s CNBC “ETF Edge”

“It’s not going to zero but watered down a bit, or you overweight one name and underweight the rest,” he said.  

TDVG’s biggest holdings after Apple and Microsoft are Visa, JP Morgan, and Chubb. Its overall exposure to the tech sector is roughly 19%, versus close to 30% for the S&P 500.

Tim Coyne, head of T. Rowe Price’s ETF business, said alongside Sohn on “ETF Edge” that the macro themes of income and dividend payment have led to strong inflows across the ETF industry’s dividend funds.

With over $10 billion in flows year-to-date into dividend ETFs, the category is keeping pace with other “factor-based” approaches to investing in the U.S. stock market, according to ETF Action data, but value ($12 billion) and growth ETFs ($15 billion) have still taken in slightly more in flows from investors.  

Top dividend ETFs, by year-to-date performance

1. Franklin U.S. Low Volatility High Dividend Index ETF: 3.7%
2. Opal Dividend Income ETF: 2.3%
3. iShares Core High Dividend ETF: 1.9%
4. First Trust Morningstar Dividend Leaders Index Fund: 0.7%
5. Monarch Dividend Plus ETF: 0.2%

Source: ETFAction.com

Coyne says that active managed dividend ETFs, in particular, make sense for investors in a volatile market. Passive dividend funds are by their nature more static, because they only change stocks as part of regularly scheduled rebalancing periods for the underlying indexes, not in response to any change in stock or sector momentum or in the overall market environment. TDVG seeks the dual goals of payment of dividend income but also long-term capital appreciation in the prices of the stocks it holds.

Actively managed dividend ETFs don’t rival the index ETF options in popularity. Passively managed dividend ETFs, consistent with the broader investor trend, have captured a majority of the flows in 2025, at roughly $7 billion, versus $3.7 billion for actively run dividend ETFs, according to ETF Action. Dividend stock index ETFs continue to have a big lead, Sohn said, with one reason being much lower cost. “I could buy a dividend ETF for just a couple of basis points, but you are seeing more active players,” he said.

TDVG has an expense ratio of 0.50% (or 50 basis points). Vanguard’s VIG, by comparison, charges 0.05%(or 5 basis points).

Sohn says actively managed dividend ETFs should make some more progress in gathering assets…