Dividend Investors Get 2 New ETF Options For 2025

As we step into 2025, dividend investors have two new ETF options to consider, each with its unique approach to generating income. The Fidelity Dividend ETF For Rising Rates (FDRR) and the Vanguard Dividend Appreciation ETF (VIG) offer investors distinct strategies for navigating the ever-changing market landscape.



Fidelity Dividend ETF For Rising Rates (FDRR)

FDRR is designed to maximize its chances of success in a rising interest rate environment. It invests in large-cap and mid-cap dividend-paying stocks that are expected to continue paying and growing their dividends, and have a positive correlation of returns to increasing 10-year U.S. Treasury yields. This focus on dividend growth and value-oriented stocks, combined with a quality tilt, positions FDRR to perform well under various market conditions.

With a 35% allocation to tech, FDRR has the potential for growth under the right circumstances. Its top three holdings—Apple, Microsoft, and NVIDIA—are all tech giants with strong dividend growth histories. However, FDRR's defensive sector allocations are relatively low, which could lead to underperformance if a recession becomes a larger risk. Nevertheless, its exposure to financials and healthcare could help it perform well if interest rates rise significantly.

Vanguard Dividend Appreciation ETF (VIG)

VIG is the largest dividend ETF by assets and one of the cheapest funds available, with an expense ratio of 0.06%. It focuses on companies that have consistently improved their payouts every year for at least 10 consecutive years, rather than focusing on high yields. This strategy has led to significant dividend growth over time, with dividends increasing by 119% from 2018 to 2022 and more than tripling since 2012.

VIG has a lower yield compared to other dividend ETFs, with a yield of around 2% at market pricing in late March 2023. However, its dividend growth has been impressive, and a higher interest rate environment could result in a prolonged period of better returns for dividend stocks, which could benefit VIG.

iShares Core Dividend Growth ETF (DGRO)

Another attractive choice for dividend growth is the iShares Core Dividend Growth ETF (DGRO). With a similar low-cost structure to VIG, DGRO offers a slightly higher yield compared to VIG, with a yield of around 2.48% at market pricing in late March 2023. DGRO has been the better performer of the two dividend-growth ETFs over the past 10 years, generating almost identical returns to the S&P 500 and outperforming the market over the past three- and one-year periods. In a higher-rate environment, there's a reasonable chance that DGRO's superior performance could continue, as dividend growth stocks tend to perform well in such environments.

In conclusion, the new ETF options for 2025 offer dividend investors a range of strategies to consider, from focusing on rising rates to prioritizing dividend growth. By understanding the unique features and objectives of these ETFs, investors can make informed decisions about which options best align with their financial goals and risk tolerance. As always, it's essential to conduct thorough research and consider seeking professional advice before making any investment decisions.