Will High-Yield Stocks Ever Compete with the S&P 500 Again? These Dividend ETFs Say the Jury’s Out.

Core Insights - The popularity of dividend stocks has shifted significantly, with a notable increase in assets under management in dividend-focused ETFs, such as the Schwab US Dividend Equity ETF (SCHD) with $70 billion [2] - The Vanguard Dividend Appreciation ETF (VIG), while larger at nearly $100 billion, offers a yield of only 1.6%, which is not substantially higher than the S&P 500 Index's yield, impacting the appeal for income-focused investors [3] - There is a growing concern about the sustainability of high-yield stocks, as reaching for yield can lead to financial and psychological distress during market downturns [4] ETF Performance - SCHD has shown a compounded annual return of nearly 9% over the past five years, resulting in a cumulative return of 47%, but has experienced a decline over the past 12 months, with a current yield of 3.8% just breaking even for shareholders [7] - The current market environment is causing some ETFs with higher yields to face vulnerabilities, although they are performing adequately for now [6] Investor Sentiment - Many investors may have a false sense of security in dividend-focused ETFs, as the market dynamics could lead to potential future turmoil [5] - The question remains on how long investors will tolerate the current performance of dividend stocks, especially in light of recent declines [7]