Dividend ETFs Attract Strong Flows as Investors Diversify

Concerned about an AI bubble? Sign up for The Daily Upside for smart and actionable market news, built for investors.

For the last few years, investors have piled into tech stocks, hoping to benefit from the AI buildout. This year, as tech growth has slowed, investors are going more old school.

Dividend ETFs, which regularly pay out investors, have raked in nearly $51 billion so far in 2026, compared to about $30 billion in 2025 and about $21 billion the year prior, according to Morningstar data. But the reason for the flows differs between dividend growth funds and high-yield dividend funds.

“Dividend funds tend to be a little bit more value leaning, so it might be a way to diversify away from a lot of the big AI stocks and tech stocks that have been dominating markets for a while now,” said Dan Sotiroff, associate director of ETF and passive strategies research at Morningstar. He added some of these flows are simply investors swapping mutual funds for ETFs, a record trend this year. But for high-yield strategies, which often hold a lot of energy stocks, the story is about performance. “A lot of the energy companies that have been doing really well have been pushing a lot of those high dividend yield ETFs.”

Sign up for The Daily Upside at no cost for premium analysis on all your favorite stocks.

READ ALSO: Franklin Templeton’s New ETFs Drip-Feed Investors Bitcoin and State Street Rolls Out 401(k)-Friendly Share Class of SPYM

A Means to a (Divid)End

October was the worst month for the Nasdaq since March 2025, with the index falling more than 5%. “This might be the first year where a lot of the market concentration isn’t necessarily working for investors anymore,” said Nick Puncer, managing director at Bahl & Gaynor. “I think an appropriate response to that is trying to identify investments that offer more evidence today that they are growing and doing it in a way that produces cash.”

Flows have gone to both high-yield and growth funds:

• The Schwab US Dividend Equity ETF (SCHD) pulled in the most by a wide margin, raking in $25 billion in net flows, according to Morningstar data.

• The Vanguard High Dividend Yield ETF (VYM) came in second, attracting $4.4 billion, followed by the First Trust Rising Dividend Achievers ETF (RDVY) with about $3.6 billion.

But the popularity is more than a movement away from tech. For dividend growth funds, increased investor attention is about both price and fundamentals, said Simeon Hyman, head of investment strategy at ProShares. “These dividend growers are selling at a substantial discount to the broader market, and that’s an unusual situation,” he said. “If you look several quarters ago, you would have seen higher year-over-year earnings growth from the S&P 500, but now you’re seeing it from the classic dividend growers as well.”

Pull Out Your Reading Glasses: Investors looking to dividend funds for diversification need to be careful to read the fine print, Puncer said. “Look at the portfolio underneath the surface, because you might be surprised that many dividend strategies out there, active or passive, might look a lot like the S&P 500, and so you’re not truly getting diversification from those,” he said. “This is maybe the first wave of a market transition where investors have a lot more choice about how they own a dividend strategy, and that’s a good thing for investors.”

This post first appeared on The Daily Upside. To receive exclusive news and analysis of the rapidly evolving ETF landscape, built for advisors and capital allocators, subscribe to our free ETF Upside newsletter.