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2024 won’t be remembered as the best year for dividend stocks. Investors entered the year prepared for the possibility of recession, but bullish on the expectation for a relatively aggressive rate cutting cycle from the Fed.

Neither came to fruition. GDP growth in the U.S. dipped to a 1.6% annualized rate in Q1, but rebounded to 3% in both Q2 and Q3. The economy has been resilient and there’s no real sign of recession in our future. That, however, put pressure on the Fed to keep rates higher than planned. With the economy humming, there was little justification for dropping rate significantly and the recent uptick in inflation will only add more pressure.

Because of the resilient economy narrative, investors remained bullish on stocks for most of the year. Cyclicals actually demonstrated leadership for a lengthy stretch, but the year looks like it’s going to close out with a familiar group on top - the magnificent 7 stocks.

The WisdomTree U.S. Total Dividend ETF (DTD), my benchmark for the broader dividend stock universe, is trailing the S&P 500 by more than 6% with a couple weeks to go in the year. What’s interesting is that this ETF, which does no particular targeting within this group, outperformed most of the major dividend ETFs that do tilt towards dividend growth, quality, yield or some combination thereof.

My four dividend ETF picks for this year were similarly a mixed bag. The First Trust Dorsey Wright Momentum & Dividend ETF (DDIV) was easily the best pick as its the 3rd best performing dividend ETF year-to-date with a gain of nearly 25%. The Smart ETFs Dividend Builder ETF (DIVS) and the ALPS O’Shares U.S. Small Cap Quality Dividend ETF (OUSM) are both up around 13%, landing somewhere in the middle of the pack. The Pacer Global Cash Cows Dividend ETF (GCOW) was up a scant 1%, proving that international was not the place to be in 2024.

The S&P 500 looks like it’s setting up for its 2nd consecutive year of 20%+ gains. That’s been a rarity over the past century. Statistically, it’s unlikely that this will happen again. In fact, it may be a coin flip whether the S&P 500 generates a gain at all, if history is any guide.

But the U.S. economy is still looking pretty healthy and the labor market is still tight. Those two factors tend to be the most important in determining whether stocks can keep moving higher. But the market isn’t likely to get much help from the Fed (the futures market is currently pricing in just one cut in 2025 as the most likely outcome) and a global trade war with high tariffs is a real possibility. Conditions look positive now, but that could change substantially six months from now.

That’s why making picks for the coming year is so difficult. Still, that’s not going to stop me from taking a swing. Let’s take a look at four ETFs that I think have a chance for success in 2025 along with the investment case.

Fidelity Dividend ETF For Rising Rates (FDRR)

FDRR debuted at a time when rates were already near 0% and weren’t likely to go meaningfully higher at any point in the near future. So it isn’t surprising that it’s only managed to amass a relatively tepid $560 million in assets. That being said, it’s logic is sound and it does a pretty good job of building an equity portfolio that maximizes its chances of success should rates continue rising.

The fund is designed to mostly invest in large-cap and mid-cap dividend paying stocks that are 1) expected to continue to pay and grow their dividends and 2) have a positive correlation of returns to increasing 10-year U.S. Treasury yields. In that way, FDRR is more dividend growth ETF than anything and much more value-oriented, but it also comes with a bit of a quality tilt. Those factors combined put it a little more on the defensive end of the dividend ETF universe, but its 35% allocation to tech suggests it’s got some growth pop in there to under the right circumstances.

Why This ETF Is A Top Pick

With so many wild cards heading into 2025, FDRR has a mix of assets that could work under a multitude of potential outcomes.

If the magnificent 7 and the AI trade continue to demonstrate strength regardless of interest rates, there’s that big tech allocation to pull the fund higher (Apple, Microsoft and NVIDIA are currently the fund’s top three holdings). If rates do rise significantly, it’s got the overweights to financials and healthcare that should help under such circumstances. There’s very little in the way of defensive sector allocations in this portfolio, so it would probably perform poorly if recession were to become a larger risk, but I’m not sure I’m seeing that happening.

And I do see interest rates rising in the new year. Inflation is already moving higher again. The broad implementation of tariffs would likely only make the situation worse. The market has priced out nearly all rate cuts in 2025 after the December meeting. All of those would support interest rates moving higher. Anything but a recession would likely give FDRR a good chance of success.

Siren DIVCON Leaders Dividend ETF (LEAD)

LEAD has developed a pretty solid track record and it’s appeared on the monthly top dividend ETF performers list multiple times over the past couple of years. The thing I like about LEAD is its quantitative methodology that targets sustainable dividend growth and emphasizes quality balance sheets.

In short, this fund starts with the S&P 500, looks at seven different dividend & quality factors and ultimately assigns them a DIVCON score based on their likelihood of increasing their dividend in the next 12 months. The best scores get overweighted while the lowest scores get minimal of no weight in the final portfolio. It’s a great way to target and include durable dividend growth stocks even though yield is not a big priority. Be careful though. Most of the portfolio is concentrated in just 3-4 sectors. If it hits, LEAD should do really well, but there’s a chance it busts if the sectors it targets are out of favor.

Why This ETF Is A Top Pick

This is a heavier cyclical play, so there’s going to be a dependence on a healthy or rebounding economic cycle for LEAD to, well, lead! The financial sector overweight should help if the economy continues to expand and/or inflation starts to rise. Plus, there’s enough tech and consumer discretionary stock exposure in the fund to provide an assist should cyclicals fall out of favor as they have in December.

This is admittedly a bit of a riskier pick given the 30% allocation to industrials, the heavy allocation to mid-caps and the sector concentration. But I think it’s positioned relatively well given where I think conditions are headed and mid-caps are attractively valued at the moment.

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WBI Power Factor High Dividend ETF (WBIY)

With just $60 million in assets, WBIY is well under most radars, but it’s another fund with a well thought out strategy that deserves a longer look.

At a high level, WBIY’s process identifies the top 50 highest dividend-yielding U.S. common stocks that also have high quality fundamentals. Those fundaments, or “power factors”, are price/earnings, price/free cash flow and price/sales ratios. These characteristics create a portfolio that tilts heavily towards high yielders (its 5% dividend yield is among the highest you’ll find in diversified U.S. equity dividend ETFs) as well as value. This strategy can help solve investors’ needs for either capital growth, high income or inflation protection.

This fund is interesting because it could be a true diversifier within a stock heavy portfolio. Stylistically, it qualifies as deep value, really high yield and has zero tech exposure. This is an asset mix that you’ll find in few other ETFs.

Why This ETF Is A Top Pick

The heavy value focus leans the portfolio towards cyclicals, financials and energy in particular, which account for more than 35% of the fund. Yes, global energy demand is expected to be weaker in 2025, but the presence of higher inflation would be key here. Inflation generally includes higher oil prices, which translate into higher energy stock prices. Higher inflation also tends to result in higher rates, which works well for banks because they can charge more for loans and improve net interest income.

I’m not sure that the deep value aspect of WBIY will necessarily help it a lot in the coming year, but the composition of the fund should hit the right notes if rates remain elevated.

Cambria Shareholder Yield ETF (SYLD)

Some folks may not consider this a traditional dividend ETF, but it deserves consideration in the category. It just expands its world view to include all forms of shareholder payouts, not just dividends.

SYLD focuses on high-cash distribution companies that are returning their cash to investors through three attributes - dividends, buybacks and debt paydown - collectively known as shareholder yield. The fund’s 2% yield may not impress on the surface, but keep in mind that buybacks and debt payments are likely to ultimately filter down to the share price. Shareholder yield is still an underappreciated investment goal, but companies that execute larger than average stock buybacks do have a history of outperforming the market.

Why This ETF Is A Top Pick

Now that most companies seem satisfied that the soft landing will be achieved and recession can be avoided (for now), they’re more comfortable in doing buybacks again. Companies have already announced more than $1 trillion in buybacks so far this year and could set a new calendar year record before all is said and done. There’s something fundamentally askew when you consider that buybacks tend to increase as share prices are rising, but there’s a history that suggests it can help stock price performance.

Like WBIY, the portfolio is very cyclically sensitive and heavy in industrials, energy, financial services and materials stocks. Ideally, the ability to avoid recession should be the best set of conditions for outperformance and I think that’s what we’ll get in 2025.

Final Thoughts

All four of these dividend ETF picks are dependent on the idea that 1) the U.S. economic expansion continues throughout 2025 and 2) inflation remains elevated above the Fed’s 2% target. If those two things happen, I think all four of these funds are positioned well to be outperformers within the dividend ETF space.

I thought about including an international dividend ETF, but I’m just having a tough time looking at conditions in places, such as Europe, Japan and China, and thinking they’re ready to lead next year. There’s big turnaround potential, especially in China if it can figure out a stimulus plan, but it’s just too risky to bet on at this time.

I’m not expecting another year of 20% returns for the S&P 500 in 2025, but I do think the environment for dividend stocks can improve substantially.