3 Dividend ETFs That Look Like Screaming Buys Right Now

The underperformance of traditional dividend ETFs in 2025 is not a sign of a broken strategy, but a clear cyclical valuation gap. The Schwab U.S. Dividend Equity ETF (SCHD) gained just 0.73% in 2025, a stark contrast to the S&P 500's 17%+ rally. This divergence is driven by a simple portfolio construction: SCHD's 8.3% allocation to tech left it entirely out of the market's primary driver. Instead, it is heavily weighted toward defensive sectors like energy and consumer staples, which were among the worst performers this year.

This sector tilt has created a significant valuation disconnect. The average holding in SCHD trades at roughly 17x earnings with a 3.7% yield. Compare that to the broader S&P 500, which commands a premium at ~25x earnings but offers a paltry 1.1% yield. The market is paying up for growth, leaving the more traditional, dividend-focused names looking cheap by comparison.

The investment question, then, is one of intrinsic value and long-term compounding. SCHD's historical track record provides a compelling benchmark. Over the past decade, the fund has delivered an annualized return of roughly 12.3%. Looking at the broader universe of dividend growth stocks, the 50-year average return is 10.2%. These figures suggest that the fund's quality-screening methodology-focusing on companies with a history of raising dividends and strong fundamentals-has built a portfolio capable of generating solid returns over full market cycles.

The current dislocation presents a potential opportunity. If the market's focus begins to shift away from pure tech momentum toward quality and income, the defensive, high-quality holdings that define SCHD could be well-positioned to re-rate. The key is to view the recent underperformance not as a failure of the strategy, but as a cyclical compression of valuation that may set the stage for a reversion to the mean over the next several years.

Valuation and Quality: Assessing the Moat

The recent underperformance of dividend ETFs is a reminder that yield alone is a poor guide to quality. The structural durability of each fund's portfolio-its competitive moat-matters far more for long-term resilience. The three funds under review employ distinct methodologies that reveal different approaches to building that moat.

Schwab's SCHD constructs its portfolio with a rigorous, multi-layered quality screen. It starts by filtering for companies with a 10-year dividend history, a baseline for financial stability. From that universe, it applies fundamental metrics like return on equity (ROE) and cash flow to debt to identify businesses with strong profitability and manageable leverage. This disciplined approach has historically produced a defensive, cash-generative portfolio, but it also led to a 0.73% gain in 2025 as it missed the tech rally. The moat here is built on operational discipline and balance sheet strength, not growth.

Vanguard's VIG takes a different, more growth-oriented path to quality. Its core criterion is a proven track record of raising dividends for more than a decade straight. This filters for companies with consistent earnings power and capital allocation discipline. The result is a portfolio tilted heavily toward resilient, market-leading firms, which explains its 13.22% return in 2025 and 27.80% allocation to technology. The moat is one of sustained competitive advantage, where the ability to consistently increase payouts signals a durable business model.

Vanguard's VYM, meanwhile, builds its moat through sheer scale and sector exposure. It targets the upper half of dividend yields from a large-cap universe, a strategy that inherently tilts toward established, cash-generative businesses. With over 500 holdings, it achieves broad diversification, reducing single-stock risk. Its 12.38% return in 2025 and 14.30% allocation to technology show it can capture growth while maintaining a high-income profile. The moat here is one of stability and breadth, leveraging the market's largest, most liquid companies.

The bottom line is that quality is not a single dimension. SCHD's moat is built on a strict quality screen, VIG's on a history of dividend growth, and VYM's on scale and diversification. For investors, the choice depends on whether they value defensive discipline, growth-aligned stability, or broad-based income security most highly.

Comparative Analysis: The Path to a "Screaming Buy"

For a value investor, the choice among dividend ETFs is a trade-off between yield, growth, and risk. The data reveals a stark contrast: high yield often comes with a capped upside, while growth potential requires exposure to volatile sectors. The most compelling entry point depends on whether the investor prioritizes immediate income or long-term capital appreciation.

The Schwab U.S. Dividend Equity ETF (SCHD) offers a classic value profile. It provides a 3.7% dividend yield and trades at a reasonable 17 times earnings. Its methodology focuses on dividend quality and stability, resulting in a portfolio heavily weighted toward defensive sectors like energy and consumer staples. However, this strategy has a clear cost: SCHD's 8.3% allocation to technology left it behind in 2025, as the fund gained only 0.73% while the broader market rallied. For a value investor seeking a steady income stream with a margin of safety, SCHD's valuation and yield are attractive. Yet its limited tech exposure severely restricts its capital appreciation potential in a growth-driven market.

The Vanguard Dividend Appreciation ETF (VIG) represents the growth-oriented alternative. It delivers significantly higher returns, with a 13.22% return in 2025 driven by a 27.80% allocation to technology. Its yield is lower at 1.57%, but the focus on companies with a long history of raising dividends provides a quality filter. VIG's performance shows that growth and income can coexist, especially when the portfolio is aligned with powerful secular trends. For a value investor with a longer time horizon who believes in the durability of tech earnings, VIG offers a superior growth profile without sacrificing the core dividend quality principle.

The JPMorgan Equity Premium Income ETF (JEPI) takes a different approach, prioritizing yield above all else. It achieves an 8.21% yield through a covered call strategy, where the fund sells options on its holdings to generate premium income. This strategy is a double-edged sword. It provides high, steady monthly cash flow but limits upside potential in a strong bull market, as the fund is often forced to sell appreciated shares at the option strike price. The strategy also introduces complexity and potential tax inefficiency. For a value investor whose primary goal is maximizing current income and who is willing to accept a lower long-term return, JEPI is the clear choice. However, it is not a pure value play; it is an income-focused strategy that sits at the intersection of equity and options.

The bottom line is that there is no single "screaming buy." SCHD offers the most traditional value setup with a reasonable yield and low P/E, but its growth potential is capped. VIG provides the best balance of growth and quality, making it the most compelling long-term investment for a value investor who can stomach tech volatility. JEPI is a specialized tool for income maximization, sacrificing growth for yield. For a value investor, the path to a screaming buy likely lies in VIG, as it aligns with the principle of buying quality businesses at a fair price while participating in the market's growth engine.

Catalysts, Risks, and What to Watch

For dividend ETFs to transition from laggards to leaders over a multi-year horizon, a fundamental shift in market leadership is required. The primary catalyst is a rotation out of growth stocks and into value and dividend sectors. This scenario would reward the defensive, high-quality portfolios that funds like the Schwab U.S. Dividend Equity ETF (SCHD) are built around. SCHD's methodology, which screens for stocks with a history of dividend payments, strong fundamentals, and above-average yields, is designed to thrive in a more cautious environment. If economic signs point to a slowdown, this quality-focused approach could finally be validated, allowing the fund to outperform its recent subpar track record.

The primary risk to this transition is the continuation of tech and growth stock outperformance. Dividend ETFs have largely underperformed in 2025 as the market rally was led by technology. SCHD, for instance, gained only 0.73% in 2025 due to its zero tech exposure, while funds with significant tech allocations like the Vanguard Dividend Appreciation ETF (VIG) returned 13.22%. If the current leadership persists, dividend ETFs will remain pressured, delaying any valuation re-rating and keeping investor flows subdued.

Investors should monitor sector performance closely, as the recent broadening of the market offers a glimmer of hope. Financials, industrials, and healthcare-three sectors that are core holdings for many dividend ETFs-have shown recent strength and could continue to do so in 2026. SCHD's top holdings include industrials and healthcare, while the Vanguard High Dividend Yield ETF (VYM) has a 21% allocation to financials. The performance of these sectors will be a key leading indicator of whether a rotation is taking hold. Watch for these areas to consistently beat the broader market; their strength would signal a shift in sentiment that could finally lift the entire dividend ETF category.