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As we enter the final month of 2024, I want to take a quick look at each of the major dividend ETFs. In general, dividend ETFs have underperformed this year, but there have been a few bright spots where certain strategies have hit a sweet spot. Those that have featured overweights to high yield and cyclical stocks have had better success, while those focused on traditionally defensive stocks have struggled.

Of the major dividend ETFs listed, none of them are beating the S&P 500 (SPY) through the end of November year-to-date. The iShares Select Dividend ETF (DVY) has come the closest, but it’s interesting that the 2nd best performer has been the WisdomTree U.S. Total Dividend ETF (DTD). A simple strategy that targets the entire dividend stock universe without any major tilt is beating most other dividend ETFs that do more specific targeting.

With the environment beginning to improve for dividend stocks in 2025, in my opinion, it seems like a good time to examine these ETFs, look at how they’ve fared this year and how they’re set up for 2025.

Schwab U.S. Dividend Equity ETF (SCHD)

No question about it, it’s been a rough year for this fund. After a long string featuring multiple consecutive years of outperformance, SCHD finally managed to fall out of favor in 2024. Among roughly 100 U.S. dividend ETFs, SCHD easily falls into the bottom half in terms of year-to-date returns.

Portfolio positioning provides the easiest explanation. Its high yield tilt certainly helped as did its exposure to financial stocks, but its 25-30% weighting in the combination of healthcare and consumer staples (two of the worst performing sectors this year) ultimately did it in. The heavy value tilt also didn’t help. SCHD’s strength comes from its quality focus while using the high yield to augment total returns. This year, when the market is rotating almost exclusively between growth and cyclical sectors, the fund’s defensive positioning wasn’t rewarded.

Every fund has periods where it falls out of favor, even this one! Next year, inflationary pressures with a resilient economy could work in its favor again. We’ve seen cyclicals and their value tilt perform better in that environment and that tends to work much better for SCHD. If the Fed isn’t able to cut rates as expected in 2025, growth stocks with high valuations are likely to underperform and that could make SCHD a leader again.

Vanguard Dividend Appreciation ETF (VIG)

VIG is another fund that struggled this year, as did many other pure dividend growth strategies. Thanks to its market cap weighting scheme, VIG has a much higher exposure to tech than other dividend ETFs, and that helped performance to some extent, but its strategy just wasn’t what the market was looking for when a straight S&P 500 investment was returning more than 20%.

VIG had the same issue as SCHD, an overweight in healthcare and staples. The above average tech exposure made this a top performer in recent years, but given that the Nasdaq 100 is trailing the S&P 500 this year, even that wasn’t able to help. It was simply underweight the right sectors and overweight the wrong ones. It didn’t help that dividend growth looked downright boring during the AI revolution.

VIG looks like a bit of a mixed bag for 2025. The high tech exposure is unlikely to change soon and expensive sectors, such as this one, could see their valuations contract over the next 12 months. I think the fund’s general value tilt will help, but it’s not as value tilted as you might think thanks to that tech overweight. If conditions turn defensive next year, VIG should do well, but I think it’s unlikely to be a leader, more of an average performer.

Vanguard High Dividend Yield ETF (VYM)

VYM is a fund that had a bit of a better year as the economic expansion and modest tailwind from the Fed gave a boost to some of the more speculative and cyclical dividend payers. While I’ve criticized VYM’s relatively loose selection criteria in the past, it did do a pretty good job in 2024 of positioning itself advantageously within the dividend stock space.

While it suffered the same problem as many dividend ETFs, which is to say that it had a healthy allocation to consumer staples & healthcare, it also had relatively modest exposure to tech, a sector which has actually lagged the broader market this year despite all of the headlines. It also enjoyed larger allocations to utilities, industrials and financials, three of the best performing sectors.

VYM is heavily valued tilted, so its success or failure will depend heavily on how value performs in the coming year. The fund was a comparatively better performer within this group despite growth leading value for the most of the year, so value leadership could really help push it to be a real leader in 2025. If inflationary pressures heat up, I think VYM is positioned to do well.

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iShares Core Dividend Growth ETF (DGRO)

DGRO falls into the dividend growth category, although relatively loosely. It requires just a 5-year dividend growth track record, while the quality screen moves it more on the defensive of the style box. DGRO’s performance and composition actually looks a lot like VYM’s right now despite the difference in targeting strategies.

DGRO has a bit more tech exposure and that was a modest drag on performance, but there weren’t really any major tilts in any direction. Since higher yielding funds generally did better, DGRO’s more modest dividend yield didn’t give it a style advantage. The quality factor, however, was a solid strategy in 2024 and this fund rated highly in that regard.

If you expect a broad market pullback in the coming year, DGRO’s style and composition might be where you want to be. Its portfolio contains a lot of durable, quality names and those should hold up regardless of market environment. If we experience another year of gains, the fund’s lower volatility lean probably won’t do it any favors. DGRO is one of the better dividend ETFs out there if you’re simply looking for a long-term quality holding.

iShares Select Dividend ETF (DVY)

DVY is one of the most concentrated dividend ETFs you’ll find. When it’s out of favor, it can get pretty ugly. When it’s in favor, however, it can be great. That makes volatility a little higher along with its boom/bust potential. That makes DVY more ideal as a long-term holding, so you can ride out some of those peaks and valleys.

DVY’s portfolio contains a nearly 30% allocation to financials and a nearly 30% allocation to utilities. Those were two of the best performing sectors of 2024, so it shouldn’t be surprising to this fund near the top of the performance charts. That wasn’t all that worked. Its high yield and momentum tilts were also in favor throughout most of the year and it strongly underweighted some of the year’s worst performing sectors.

DVY makes me nervous for 2025. Its portfolio is so concentrated that it really needs to hit that narrow niche in order to outperform. Will utilities and financials be the two top performing sectors again next year? Probably not together, although one of them may do well. The heavy utilities allocation is unusual within the dividend ETF space, so a broad market pullback could benefit this fund more than others. If the market broadens out, it’s probably a tougher environment.

WisdomTree U.S. Quality Dividend Growth ETF (DGRW)

DGRW has had some of the best risk-adjusted returns over the past few years. Look at the portfolio and you can understand why - its got a 30% allocation to tech and three of the funds top 5 holdings are Apple, Microsoft and NVIDIA. Sector weightings are capped at 20%, so this will get corrected at the next rebalancing, but that’s what you get when you market-cap weight a portfolio with looser qualifying criteria.

DGRW’s performance moderated in 2024 as tech began to take a back seat. It benefited from relative overexposure to the growth and quality factors, but the underweights in some of the markets best sectors definitely hurt. This fund probably has one of the higher correlations to the S&P 500, so it may be a good choice if you want to veer away from that index, but not too far.

Assuming that the fund gets rebalanced and the significant overweight to tech gets brought back down to earth, the fund is pretty broadly diversified, which should limit the possibility of performance on either end of the spectrum. Its strategy did a really good job of being able to capitalize in the right sector at the right time, but I’m not sure that happens again. The strong risk-adjusted performance of the past is unlikely to repeat, in my opinion. That doesn’t necessarily mean it will be an underperformer in 2025, but it’s reasonable to expect risk-adjusted returns to moderate going forward.