Dividend ETFs Look Attractive as Inflation Picks Up in June

Yahoo

16-07-2025

Inflation in the United States accelerated in June, indicating the early impact of new tariffs. The Consumer Price Index grew 2.7% year over year, up from the 2.4% increase in May and marking the highest level at the fastest pace since February. Month over month, inflation climbed 0.3%, up from a 0.1% rise the previous month.Tariffs imposed under President Donald Trump are raising the cost of everyday goods such as clothing, furniture and appliances, according to government data. Excluding volatile food and energy costs, so-called core prices ticked up to 2.9%, a slight increase from 2.8%.The inflation uptick coincides with sweeping tariffs enacted by the Trump administration: a blanket 10% levy on all imports, 50% duties on steel and aluminum, 30% on Chinese goods, and 25% on imported automobiles. Trump has also threatened to impose a new 30% tariff on European Union imports starting Aug.1. These tariffs are trickling down to consumer prices. Gasoline price rose 1% from May to June, grocery prices climbed 0.35%, and appliance prices increased for the third consecutive month.Several major companies, including Walmart, Nike and Mitsubishi, have acknowledged passing higher costs onto consumers. Some firms delayed price hikes earlier this year by stockpiling inventory, but that buffer is now diminishing.In such a scenario, dividend investing seems to be a viable strategy for several reasons:Income Generation: One of the primary benefits of dividend investing is the steady stream of income generated through dividend payouts. Even if the market is volatile due to trade and the Fed uncertainties, dividend-paying stocks can provide a consistent income stream. Potential for Dividend Growth: Companies with a strong history of dividend growth may continue to increase the same over time, which can help offset the impact of rising interest rates. These are typically established, profitable companies that have the financial flexibility to increase dividends even during economic downturns. Their ability to grow dividends can be a sign of financial health, which might provide some level of protection in an uncertain market (read: Best-Performing Dividend ETFs of 1H).Defensive Nature: Dividend-paying stocks are often found in sectors considered "defensive," such as utilities, consumer staples and healthcare. These sectors can hold up better during economic downturns as they produce essential goods and services that are in demand regardless of economic conditions. Therefore, they may provide some level of stability in a portfolio if there are concerns about potential economic impacts from future rate hikes.Compounding Returns: Reinvesting dividends can significantly enhance the power of compounding and can lead to exponential growth over the long term.Hedge Against Inflation: Dividend-paying stocks can also serve as a hedge against inflation. Companies that can pass on increased costs to customers can maintain or even increase their profitability during inflationary periods, which can support their ability to pay dividends.
ETFs to Bet On
While there are several funds available in the space, we have highlighted five ETFs that have a solid Zacks Rank #1 (Strong Buy) or 2 (Buy), which promise outperformance amid the current market conditions. Vanguard Dividend Appreciation ETF (VIG)Vanguard Dividend Appreciation ETF is the largest and the most popular ETF in the dividend space, with an AUM of $93 billion and an average daily volume of 804,000 shares. The fund follows the S&P U.S. Dividend Growers Index, which is composed of stocks of companies that have a record of increasing dividends over time. Vanguard Dividend Appreciation ETF holds 337 stocks in its basket and charges 5 bps in annual fees. It has a Zacks ETF Rank #1.Vanguard High Dividend Yield ETF (VYM)Vanguard High Dividend Yield ETF provides exposure to high-yielding dividend stocks by tracking the FTSE High Dividend Yield Index. It has amassed $61.8 billion in its asset base while trading in volumes of 1.1 million shares a day on average. Vanguard High Dividend Yield ETF holds 582 stocks in its basket and charges 6 bps in annual fees. It has a Zacks ETF Rank #1.iShares Core Dividend Growth ETF (DGRO)iShares Core Dividend Growth ETF provides exposure to 397 companies having a history of sustained dividend growth by tracking the Morningstar US Dividend Growth Index. It has AUM of $32.5 billion and trades in solid volumes of about 1.5 million shares. DGRO charges 8 bps in fees per year and has a Zacks ETF Rank #1 (read: 5 ETF Predictions for the Second Half of 2025).SPDR Portfolio S&P 500 High Dividend ETF (SPYD)SPDR Portfolio S&P 500 High Dividend ETF provides exposure to stocks with a high level of dividend income and the opportunity for capital appreciation by tracking the S&P 500 High Dividend Index. Holding 77 stocks in its basket, the fund has key holdings in real estate, utilities, financials, and consumer staples. SPDR Portfolio S&P 500 High Dividend ETF has AUM of $7 billion and trades in an average volume of 1.2 million shares. It charges 7 bps in annual fees and has a Zacks ETF Rank #2.Schwab U.S. Dividend Equity ETF (SCHD)Schwab U.S. Dividend Equity ETF offers exposure to 103 high-dividend-yielding U.S. companies that have a record of consistent dividend payments, supported by fundamental strength based on financial ratios and ample liquidity. This can be easily done by tracking the Dow Jones U.S. Dividend 100 Index. Schwab U.S. Dividend Equity ETF charges 6 bps in annual fees and trades in a solid volume of about 17 million shares a day. It has an AUM of $71.3 billion and a Zacks ETF Rank #2.
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report
Vanguard Dividend Appreciation ETF (VIG): ETF Research Reports
SPDR Portfolio S&P 500 High Dividend ETF (SPYD): ETF Research Reports
Vanguard High Dividend Yield ETF (VYM): ETF Research Reports
iShares Core Dividend Growth ETF (DGRO): ETF Research Reports
Schwab U.S. Dividend Equity ETF (SCHD): ETF Research Reports
This article originally published on Zacks Investment Research (zacks.com).
Zacks Investment Research