The Schwab US Dividend ETF and SPDR S&P Dividend ETF are projected to see rising yields over time.
Traders in federal funds are estimating an 87% likelihood that the U.S. Federal Reserve will lower interest rates this week. This situation makes it more challenging to find high-yield income options as Treasury yields drop ahead of the Fed’s updated forecast. This would mark the Fed’s third rate cut in 2025, and despite some uncertainty, traders are anticipating additional cuts in 2026.
As we enter a new phase of lower interest rates, high-dividend stocks have become crucial for those seeking income. While there are numerous individual stocks, known as Dividend Kings, that have consistently increased dividends over many years, two exchange-traded funds (ETFs) stand out for investors wanting a steadily growing income from a diversified selection.
1. Schwab US Dividend Stock ETF
Launched in October 2011, the Schwab US Dividend Stock ETF (SCHD 0.14%) aims to mirror the performance of the Dow Jones US Dividend 100 Index, which tracks 100 companies that have raised their dividends yearly for at least a decade.
Crucially, the fund avoids a strategy focused solely on high yields, which can trap investors in poor choices. Instead, it prioritizes stable, dividend-growing companies that show strong fundamentals, looking at metrics such as cash flow-to-debt ratio, return on equity, dividend yield, and five-year dividend growth rate. Each month, the fund reassesses its holdings, promptly removing stocks with canceled dividends.
The goal of the Schwab U.S. Dividend ETF is to closely follow this index, excluding taxes and fees, thereby giving investors access to blue-chip stocks that meet strict requirements. Its top 10 holdings include major names like Coca-Cola, Texas Instruments, and AbbVie, all of which raised their dividends in 2025 (5.2%, 4%, and 5.5%, respectively).
The rate increases may not be massive, yet they surpass this year’s annual inflation rate of 3%. If the dividend growth consistently outpaces inflation, it could become a significant income source down the line, provided you start with a satisfactory base yield. The fund currently offers a yield of 3.8%, which is more than three times the yield of the typical S&P 500 company.
Since its inception in 2011, the Schwab U.S. Dividend Stock ETF has yielded an average annual return of 12.17%. With an expense ratio of 0.06%, it’s significantly below the industry average of 0.14%.
2. SPDR S&P Dividend ETF
The SPDR S&P Dividend ETF (SDY 0.02%) typically seeks to reflect the S&P High Yield Dividend Aristocrats® Index, which selects stocks that have elevated their dividends for a minimum of 20 years, weighting these by yield. Dividend Aristocrats® is a trademark of Standard & Poor’s Financial Services.
Since it began in November 2005, this fund has achieved an average annual return of 8.65%. Among its top 10 holdings, companies like Verizon Communications, Chevron, and Target have raised their dividends by 1.88%, 5%, and 1.8% in 2025, respectively.
However, the dividend growth for some of these top holdings has lagged behind inflation this year. The fund has only returned 5.88% year-to-date, which is underwhelming compared to the S&P 500’s total return of 17.8% since the beginning of the year. This underperformance can be attributed to the fund’s significant exposure to tech, with a major sector weight on Industrials and Consumer Staples. If the tech rally falters, as some analysts worry it might due to high valuations, a shift into utilities and other defensive sectors could provide a boost to this fund as we head into 2026.
Additionally, the SPDR S&P Dividend ETF gives investors access to real estate investment trusts (REITs) that aren’t part of the Schwab U.S. Dividend Stock ETF’s lineup. REITs, which manage or fund income-generating properties, tend to attract investors during periods of lower interest rates.
While the fund’s expense ratio of 0.35% is above the industry average, it remains lower than the average 0.40% expense ratio for equity mutual funds. Its yield is currently at 2.6%, which is more than double that of the typical S&P 500 company.
Which fund might be best for you?
These funds come with different advantages, risks, and potential downsides worth considering.
The SPDR S&P Dividend ETF features more diversification, with 152 holdings, and it includes REITs, as mentioned. It also looks at a longer history of annual dividend increases, requiring a minimum of 20 years compared to the 10 years needed for the Schwab U.S. Dividend Stock ETF.
On the other hand, the Schwab U.S. Dividend ETF’s lower expense ratio and higher yield could appeal to those with a short-to-medium-term focus. Both ETFs offer attractive yields with the potential for substantial growth in the coming years, making them worthy options for investors looking to navigate a declining interest rate environment.
