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These 2 Dividend ETFs Could Shine if Rate Cuts Hit Again in 2026

Written by Jordan Chussler on February 16, 2026 

At a Glance

• Interest rate cuts and Kevin Warsh’s potential “dovish” Fed leadership are driving income investors away from bonds toward high-yield equities.
• Popular ETFs like JEPI and SPYI offer massive yields but often lack the long-term share price growth found in other dividend-focused funds.
• The SCHD and the VIG provide reliable income and capital appreciation, with both outperforming the S&P 500 so far in 2026.

With the Federal Reserve having enacted a rate-cutting cycle in each of the past two years—and the market pricing in the likelihood of additional cuts later in 2026, according to CME Group’s FedWatch Tool—income investors are likely to continue turning to the equities market in order to produce a sizable yield. 

The Fed’s benchmark—the effective federal funds rate—is currently 3.64%, marking its lowest point since fall 2022. And if President Trump’s next Fed chair nominee, Kevin Warsh, turns out to be dovish on interest rates, it could spell more trouble ahead for fixed income.  

For investors looking to get ahead of potential rate cuts, dividend growth exchange-traded funds (ETFs) can play a pivotal role in generating reliable—and growing—income that can both help offset persistent inflation and supplement a broader dividend portfolio composed of individual stocks. 

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Not All Dividend ETFs Are Created Equal

Income investors are likely familiar with funds such as the JPMorgan Equity Premium Income ETF (NYSEARCA: JEPI)and the NEOS S&P 500 High Income ETF (BATS: SPYI). Both of those ETFs have surged in popularity among dividend-focused portfolios for their substantial yield and monthly payments. 

The JEPI currently yields 8.02%, or $4.73 per share annually, while the SPYI currently yields an eye-catching 11.79%, or  $6.15 per share annually. 

But where both of those funds fall short is their focus on dividend growth and share appreciation. Since its inception in May 2020, JPMorgan’s namesake income fund has been rangebound, mostly trading between $50 and $63.19. Meanwhile, the NEOS income alternative has seen its shares trade between $43.59 and $52.68 since its inception in September 2022. 

For those in search of dependable dividend growth alongside a fund offering appreciation potential, the Schwab US Dividend Equity ETF (NYSEARCA: SCHD)and the Vanguard Dividend Appreciation ETF (NYSEARCA: VIG) fit the bill.

Each fund maintains a focus on stable and growing cash flow, which translates to lower volatility, while providing shareholders with gains of more than 269% for the SCHD and nearly 353% for the VIG since their market debuts in October 2011 and April 2006, respectively.

Here’s a breakdown of each ETF, and how each appeals to yield-focused investors.  

SCHD: A Basket of Defensive Sector Stocks With Strong Track Records 

The SCHD is one of the flagship products offered by Charles Schwab and is designed to provide investors with exposure to high-quality U.S. companies with a track record of paying dividends. The fund tracks the Dow Jones U.S. Dividend 100 Index, which is composed of 100 high dividend-yielding U.S. companies.

For the past few years, the SCHD has exhibited strong financial performances, consistently generating healthy revenue and earnings growth, which are driven by the strong performances of its high dividend-paying holdings, which mirror its benchmark, the Dow Jones U.S. Dividend 100 Index.

This year, those holdings have played a critical part in the fund’s outperformance. So far in 2026, the SCHD has posted a year-to-date (YTD) gain of more than 13% versus the S&P 500’s loss of 0.37%. 

That gain has been driven by a portfolio that has benefited from investors’ flight to safety. While tech stocks—and software names in particular—continue to sell off, the SCHD’s sector exposure keeps rewarding its shareholders. 

The fund’s top allocation is to energy (20.3%), the sector that is leading the market this year, followed by consumer staples (18.5%), health care (15.5%), and consumer discretionary (10.4%). Technology rounds out the top five but only accounts for 10.2% of the ETF’s allocations—a major reason the SCHD has produced such a strong gain in the early part of the year.   

As a testament to the strength of its allocations, the fund’s current short intereststands at an 0.17% of the float. Meanwhile, institutional owners have poured funds into the SCHD, with inflows of $11.65 billion over the past 12 months, more than double outflows of $4.75 billion. 

Performance aside, the dividend is what draws most investors to the fund. The SCHD current yields 3.32%, or $1.04 per share annually. 

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VIG: Dividend Growth With a Side of Tech Exposure

While defensive sectors have led the market higher in the early part of 2026, it has come at the expense of tech, which has seen a YTD loss. But for income investors who are also eyeing a rebound in that corner of the market, the VIG could be the answer.   

Because of its sizable allocation to technology (25.5%), Vanguard’s dividend appreciation fund has only gained a little above 2% YTD. However, with two Magnificent Seven stocks as well as Broadcom (NASDAQ: AVGO) among its top five holdings, the fund is likely to make up for lost ground when tech finds its footing this year. 

Until then, the ETF’s exposure to financials(21.9%), health care (16.6%), and industrials(10.4%)—the market’s fourth-best performing sector YTD—help offset tech’s shortcomings. 

The fund’s dividend currently yields 1.57%, or $3.55 per share annually. Short interestof 0.04% is currently lower than the SCHD, and institutional buyers have injected $15.66 billion into the fund over the past year against outflows of $10.5 billion.

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