High-Yield Dividend ETFs: A Diversified Approach to Inflation-Proof Retirement Income

For retirees seeking to preserve purchasing power in an era of persistent inflation, high-yield dividend ETFs have emerged as a compelling tool. These funds combine the stability of dividend-paying stocks with the diversification of global markets, offering a dual benefit: income generation and inflation hedging. Among the most notable options are SPYD, SCHD, and VYMI, which target U.S. and international high-dividend equities. By analyzing their performance, volatility, and risk-adjusted returns against the S&P 500, we uncover how strategic diversification across geographies can enhance retirement portfolios.

The Case for High-Yield Dividend ETFs

Dividend-paying stocks have long been a cornerstone of income-focused investing, particularly in inflationary environments. Dividends not only provide regular cash flow but also often rise with corporate earnings, offering a buffer against price erosion. According to a Bloomberg report, dividend growth has historically outpaced inflation over the long term, making these equities a natural hedge for retirees.

SPYD, which tracks the S&P 500 High Dividend Index, exemplifies this strategy. As of November 2025, SPYD's trailing twelve-month (TTM) dividend yield stood at 4.46%, significantly higher than the S&P 500's 1.06%. While its 2025 YTD return of 4.79% lagged behind SPY's 17.63%, SPYD's focus on high-yield stocks-such as utilities and consumer staples-reduces exposure to volatile growth sectors, making it a safer bet for income stability.

U.S. vs. International Exposure: Balancing Yield and Volatility

The Schwab U.S. Dividend Equity ETF (SCHD) offers a hybrid approach, combining dividend growth and yield. With a 0.06% expense ratio and a 2011–2025 cumulative return of +256.77%, SCHD has delivered steady, albeit modest, gains. However, its 2025 YTD volatility of 3.49% and a Sharpe Ratio of 0.25 highlight its lower risk-adjusted returns compared to broader market benchmarks. This suggests that while SCHD prioritizes stability, it may sacrifice growth potential-a trade-off retirees must weigh against their inflation concerns.

In contrast, the Vanguard International High Dividend Yield ETF (VYMI) has outperformed both U.S.-centric peers and the S&P 500. As of November 2025, VYMI's YTD return of 33.18% far exceeded SPY's 17.63%, while its TTM dividend yield of 3.81% offered a middle ground between SPYD and SPY. More impressively, VYMI's Sharpe Ratio of 2.10 and Sortino Ratio of 2.84-far superior to SPY's 0.79 and 1.25-underscore its ability to generate high returns with lower downside risk. This performance is driven by its exposure to European and emerging-market equities, where high-yield sectors like energy and real estate have thrived amid global inflationary pressures.

Inflation-Adjusted Returns: A Long-Term Perspective

While U.S. equities like SPY have historically delivered robust capital appreciation, their inflation-adjusted returns tell a different story. From 2023 to 2025, SPY's cumulative return of +374.28% outpaced SCHD's +256.77% and VIG's +271.91%. However, SPY's higher volatility-evidenced by its -23.15% loss in 2022 versus SCHD's -9.14%-raises questions about its suitability for retirees prioritizing capital preservation.

The key lies in dividend reinvestment. Over the past decade, SPY's 5.89% dividend CAGR has lagged behind SCHD's 10.08%, suggesting that high-dividend ETFs may better sustain income during inflationary periods. For retirees, this means allocating a portion of their portfolio to funds like SCHD and VYMI, which combine rising dividends with lower volatility, could mitigate the erosion of real returns.

Strategic Diversification: A Path Forward

To build an inflation-proof retirement portfolio, investors should consider a mix of U.S. and international high-yield ETFs. SPYD and SCHD provide domestic stability, while VYMI taps into global opportunities. For example, a 60% allocation to SPYD/SCHD and 40% to VYMI could balance the former's income security with the latter's growth potential.

However, international exposure is not without risks. Currency fluctuations and geopolitical uncertainties can amplify volatility, as seen in VYMI's 2025 YTD volatility of 3.49%. Yet, its superior Sharpe Ratio of 1.48 compared to SPY's 1.28 suggests that these risks are more than offset by its returns. Retirees should also consider hedging currency exposure or opting for funds with diversified regional holdings to further reduce risk.

Conclusion

High-yield dividend ETFs like SPYD, SCHD, and VYMI offer retirees a powerful toolkit to combat inflation. While U.S.-focused funds prioritize stability, international options like VYMI deliver superior risk-adjusted returns and higher yields. By diversifying across geographies and strategies, investors can craft a portfolio that balances income, growth, and resilience-ensuring their savings keep pace with rising costs in retirement.