Sit Out Market Drama With These 3 Dividend Funds

The new trade war precipitated by President Donald Trump‘s tariffs has turned investors against companies heavily involved in the import-export market. Instead, companies with stable revenue, low valuations and little exposure to trade are rising.

Especially ones that offer nice dividends. Today, let’s look at a couple of examples.

Then, we will consider the three best dividend funds to capture this trend.

Consider companies like Verizon VZ (6.07% dividend right now), which does not purchase or sell products in overseas markets, or tobacco giant Altria MO (7.25% dividend), which sells most of its products in the USA.

Past that, dividend stocks and funds have been performing well in 2025.

“Dividend-oriented strategies have performed well in the first quarter of 2025,” said William Connor, CFA, CFP, partner at Sax Wealth Advisors. “The SPDR S&P Dividend ETF SDY generated a positive return during Q1 2025 of 2.71%, which compares favorably with the S&P 500, which lost 4.55% in the first quarter of 2025.”

Although the S&P 500 has outperformed over the last year, increasing 7.1% while the SDY was up 3.86%, dividend stocks tend to be less volatile, often due to the more defensive nature of the economic sectors in which they operate. “Ned Davis Research conducted a study of dividend-paying companies compared to non-dividend-paying companies,” Connor noted. “The results illustrated what many investors intuitively feel; dividend stocks exhibit lower volatility than non-dividend payers and a broad index like the S&P 500.”

That data matters at a time when the Trump administration has sought a level playing field on tariffs, causing major upheaval in global markets.

“The impact of potential tariffs on the economy is unknowable at this point, given that the specifics have yet to be announced,” Connor said. “What is likely is the uncertainty around tariffs (amounts, sectors, and exemptions, for example) is leading many investors to be concerned about the outlook for US stocks.”

Since dividend stocks have been less volatile over time than the average stock, it’s reasonable for investors concerned with the growth outlook to focus on them. “The dividend payment provides a steady, predictable return to help manage volatility and risk,” Connor added.

Given the volatility linked to trade and tariffs, will that be the case going forward? Yes and no.

“In the short-term, tariffs are likely to be seen as a negative for dividend stocks – particularly globally-focused companies – as tariffs increase the price of imported goods or raw materials, which can impact profitability,” said Rob Edwards, managing director and senior portfolio manager at Florida-based Edwards Asset Management.

In the long run, however, Edwards believes dividend stocks should prosper, even with tariffs, as they are typically more mature companies that have proven resilient to many economic challenges.

“I believe that you should own dividend stocks to invest throughout an entire market cycle, not around it,” he noted.

Three Solid Dividend ETFs

Rather than take your chances with one or two individual dividend-paying stocks, curb some downside risk by leveraging dividend exchange-traded funds, where you can also get some bang for your buck.

SPDR S&P Dividend ETF

Like the best dividend ETFs, the SPDR S&P Dividend ETF SDY is a tax-efficient, low-cost, highly liquid investment with broad exposure to high-quality stocks.

The fund aims to produce investment results corresponding to the total return performance of the S&P High Yield Dividend Aristocrats Index. “The fund really focuses on S&P Composite 1500 Index companies that have followed a managed-dividends policy of consistently increasing dividends every year for at least 20 consecutive years,” Connor said.

Dividend payments are about 0.80% and the fund has returned 4.76% year-to-date.

Dividend ETFs are not flashy, but they’re steady, and that’s what Steven Kibbel, a financial planner and chief editorial advisor at Gold IRA Companies in Franklin, Tenn. “Many people, especially retirees I work with, like them because they give regular income without needing to sell shares. That matters when you’re trying to make your savings last. These funds mostly hold big companies that keep paying dividends no matter what’s going on in the market. Think utilities, healthcare, and food companies. That kind of thing.”

Schwab U.S. Dividend Equity ETF

One dividend fund Kibbel favors holds those same traits – Schwab U.S. Dividend Equity ETF SCHD.

“It’s simple, low-cost, and holds strong companies with solid financials,” he said. “I’ve used it for years with clients who want income and stability. Another one I use is iShares Select Dividend DVY. That one focuses more on higher yields. It’s not always the right fit for everyone, but it works well if income is the top goal.”

SCHD currently offers a healthy 3.85% dividend; its year-to-date returns are 2.93% compared to 4.49% for its category.

iShares Core High Dividend ETF

iShares Core High Dividend ETF HDV is another popular pick among money managers.

The fund holds 75 high-dividend-paying stocks and is energy-heavy, with Exxon XOM and Chevron CVX comprising two of the top three fund holdings. Johnson & Johnson JNJ also joins the group. 

Big-cap brand names are the fund’s bread and butter, although no one stock tops 9.3% of its holdings (that would be Exxon). The fund is up 7.75% and has generally landed in the 10% annual return range since it launched in 2011. HDV also offers a robust 3.41% dividend yield with an ultra-low 0.8% expense ratio.

What To Look For With Dividend ETFs

Before you get rolling on dividend funds and kick some tires, have a game plan to leverage that matches you up with the right fund.

“You want an ETF that holds reliable stocks with a history of raising dividends annually, and that offers a true hedge against inflation,” said Ketti Rose, the CEO and founder of Wealthy Femme, a money management platform geared toward women investors. “Also, ensure the expense ratio is low – the less, the better, as there’s no need to sacrifice returns for fees.”

Additionally, seek out ETFs that maintained steady — or even increased — dividends through past recessions (e.g., in 2008 or 2020). “That’s a strength you can depend on,” Rose noted.

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