By Ian Salisbury
It hasn't been a great year for dividends, but some dividend funds are killing it. The trick is knowing where to look.
While stocks are having a great run, with the S&P 500 up more than 16% in 2025 and less than 1% below its mid-October record high. The rally has been led by growth-oriented tech stocks. That means it has been difficult for many dividend ETFs to keep up.
The $120 billion Vanguard Dividend Appreciation ETF, the largest dividend exchange-traded fund on the market, has returned just 14%. The Schwab US Dividend Equity ETF, a $70 billion competitor, has gained an anemic 3.9%.
Still, plenty of dividend funds, have delivered rock-star-like returns. Most just aren't among the market's most popular names.
One group putting up big numbers this year are international dividend funds. The top-returning dividend ETF in Morningstar's database is the First Trust STOXX European Select Dividend Index ETF, which has returned 55%. A broader fund whose focus goes beyond Europe, the iShares International Select Dividend ETF, isn't far behind at 48%.
International funds are benefiting from a number of factors. The concern is widespread that U.S. stocks are overvalued -- the S&P 500 is trading at 22 times the earnings expected for next year, according to FactSet -- so some nervous investors have been looking abroad. Developed-country stocks, which trade at only about 15 times, have been a haven.
The weakening dollar, which has declined 11% against the euro this year, is another factor. When the dollar weakens, it increases the value of foreign profits and dividends for U.S. investors, directly boosting fund returns.
International dividend funds also tend to have big holdings of European and other overseas bank stocks, a sector that has been on fire this year after years of lackluster returns. Thank healthy credit profiles and stable interest rates at the European Central Bank. At around 2%, ECB rates are low enough to spur borrowing and high enough for banks to earn reasonable returns.
A handful of U.S. dividend funds have also been beating the S&P 500 this year. Consider Capital Group Dividend Value ETF, subject of a recent Barron's profile, or Fidelity Dividend ETF for Rising Rates.
Both funds have big allocation to tech stocks, which means they don't offer a giant dividend yield. Offsetting that drawback is that they may help you keep pace with the market.
It might seem strange to buy an ETF designed for rising interest rates in a market where the Fed is cutting. But the Fidelity fund is designed to own stocks that can withstand interest-rate increases. Those tend to be big tech companies with solid cash flows, which have performed well in recent years.
5 Winning Dividend ETFs
First Trust STOXX European Select Dividend Index Fund / FDD
Year-to-date total return: 55% Yield: 5% Assets under management: $651 million Expense ratio: 0.59%
iShares International Select Dividend ETF / IDV
YTD total return: 48% Yield : 4.7% Assets under management: $6.5 billion Expense ratio: 0.5%
WisdomTree International High Dividend Fund / DTH
YTD total return: 38% Yield: 3% Assets under management: $502 million Expense ratio : 0.61%
Capital Group Dividend Value ETF / CGDV
YTD total return: 25% Yield: 1.4% Assets under management: $26 billion Expense ratio: 0.33%
Fidelity Dividend ETF for Rising Rates / FDRR
YTD total return: 22% Yield: 2.1% Assets under management: $651 million Expense ratio : 0.15%
Source: Morningstar
Write to Ian Salisbury at ian.salisbury@barrons.com
This content was created by Barron's, which is operated by Dow Jones & Co. Barron's is published independently from Dow Jones Newswires and The Wall Street Journal.
(END) Dow Jones Newswires
December 10, 2025 03:00 ET (08:00 GMT)
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