No matter how much investors hope it will happen, volatility in the stock market isn’t going away, and market swings of a few percentage points in a single day, which used to be incredibly rare, may become more common, especially if we are truly in an AI bubble or if there are truly signs that the last three years of double-digit gains point to signs of an impending crash.
For dividend investors, this creates something of a choice, as fears of any crash might have you thinking you should hide in cash and watch your purchasing power erode, or think about how to build a portfolio that stays strong even when the markets are messy.
The problem is that most dividend strategies blow up when you need them most, so it’s time to build something different. The three ETFs below do exactly that by prioritizing quality, focusing on companies that raise dividends regularly, and structuring their holdings to reduce volatility without sacrificing income.
Why Dividend Quality Matters in Volatility
The difference between a dividend fund that breaks when things get tough and one that endures all comes down to what is “under the hood.” Some funds are going to chase yield by loading on shaky companies or overweighting in a single sector like technology. If this sector gets hit hard, the entire fund is affected, and dividend cuts could follow.
Fortunately, these ETFs take a different approach by screening for companies with strong balance sheets, consistent earnings, and that have already demonstrated they can perform during downturns. There is also a sizable amount of diversity, so that no single company or sector is weighing things down. The thing you need to know most is that when the market drops by 20%, these funds might fall 10%, but the dividend checks keep arriving, no matter what, and that is completely by design.
Fidelity High Dividend ETF
To get a portfolio started that can handle volatility well, begin by looking at the Fidelity High Dividend ETF (NYSE:FDVV | FDVV Price Prediction), which holds high-quality dividend-paying stocks that have been screened for a history of sustainable payouts and strong business fundamentals. This fund looks at a variety of factors to identify which companies, based on their earnings, balance sheets, and cash flows, should be added to the holdings mix.
The 2.88% yield is modest, but the 11.29% dividend growth is the real story, and the fund isn’t even paying you maximum income today. The whole idea here is to position yourself to collect significantly larger dividends down the road. To this point, with a payout ratio of only 56.45%, there is plenty of room for growth, and if you owned 5,000 shares right now, you’re collecting around $8,200 annually in quarterly payments, all while knowing this number is going to be much larger by the end of the decade.
State Street SPDR S&P Dividend ETF
The State Street SPDR S&P Dividend ETF (NYSE:SDY) holds S&P 500 companies that all have a 20-year track record of dividend increases. This is more than just your standard dividend fund, it’s one that is built on the proven resilience of these companies, which means each of these names has survived recessions, rate shocks, and bear markets.
The 2.60% yield combines with a 7.44% dividend growth number to create a compelling story. What you are getting is meaningful income that is going to grow faster than inflation, all from companies that have shown over more than 20 years that they will keep paying no matter what.
There is even the comfort of knowing that this ETF holds its companies as spread across different sectors, so that you are not on the hook if just one single area gets overwhelmingly impacted during volatility. With around 5,000 shares of ownership, you’re looking at around $18,150 annually spread across four quarterly payments.
Vanguard Dividend Appreciation ETF
If you’re focused on the long game, and you should be, look no further than the Vanguard Dividend Appreciation ETF (NYSE:VIG), which is home to stocks that have raised dividends for at least 10 consecutive years. While a 1.62% yield might look small at first glance, you have to look deeper and find the 5.29% annual growth number.
Even during market corrections, this ETF is focused on quality, which in turn leads to smaller drawdowns than the broader market. What this really means is that the dividends you will receive are coming from businesses that can, again, remain resilient against market volatility.
With a payout under 40%, you also have room for growth as these companies keep raising dividends even if earnings might dip during a recession. Owning 10,000 shares would net you roughly $35,600 annually, but this number is set to increase to $37,500 the following year and then $39,500 the year after that, so you can quickly see the benefit of what you will receive with or without broader market volatility.
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