Income investors often face a difficult choice. The choice is whether to chase high yields and sacrifice growth or focus on capital appreciation and settle for minimal income. But in today’s market, where volatility remains high, many investors are looking for a more balanced approach. Dividend-focused ETFs offer a compelling middle ground. This three-ETF portfolio combines the right mix of funds to help provide steady income while still participating in long-term market upside.
Simple ETF #1: SCHD (High-Quality Income With Stability)
The Schwab U.S. Dividend Equity ETF (SCHD) is one of the most popular dividend ETFs. It tracks the Dow Jones U.S. Dividend 100 Index, focusing on high-quality U.S. companies with robust cash flows, sound balance sheets, and a track record of dividend payments.
The SCHD currently yields 3.4%, or $1.04 per share annually. It pays more than the S&P 500 Index ($SPX) average of 1.16%, making it one of the best choices for income-focused investors. But what truly sets SCHD apart is its emphasis on financial strength and shareholder returns, rather than just chasing the highest yield. Its portfolio leans toward defensive sectors like energy, consumer staples, and healthcare, which usually tend to fare better during market downturns.
Notably, the energy sector accounts for 22.4% of the whole fund, followed by consumer equities (18.6%) and healthcare (15.6%). Its major holdings include Lockheed Martin (LMT), Chevron (CVX), Verizon Communications (VZ), Bristol Myers Squibb (BMY), and Altria Group (MO), among others.
Over the past five years, SCHD has delivered a total return of 25%, trailing the S&P 500 Index returns of 62.6%. However, it has offered a smoother ride along the way. This underperformance is largely due to its lower exposure to high-growth tech stocks, which have driven much of the market’s gains. However, SCHD’s appeal lies in its reliable income stream and resilience amid market crises. For investors seeking stable dividends without taking on too much risk, SCHD is an ideal addition to a simple three-ETF portfolio.
Simple ETF #2: DGRO (The Balance Between Income and Growth)
The iShares Core Dividend Growth ETF (DGRO) tracks the Morningstar U.S. Dividend Growth Index. DGRO takes a slightly different approach, focusing on companies that consistently grow their dividends over time.
It currently yields 2.08%, higher than the S&P 500. However, unlike traditional high-yield funds, DGRO prioritizes dividend sustainability and earnings growth, which often leads to better long-term capital appreciation. Its holdings include mostly companies that have a track record of paying and increasing dividends for over 50 years in a row, otherwise known as the Dividend Kings.
Its top holdings are Exxon Mobil (XOM), Johnson & Johnson (JNJ), AbbVie (ABBV), Procter & Gamble (PG), Apple (AAPL), Microsoft (MSFT), and Broadcom (AVGO), among others. DRGO's portfolio is diverse, with the biggest exposure to technology, healthcare, and finance, giving it greater growth potential than SCHD. This balance is evident in its performance.
Over the last five years, DGRO has returned 42.9%, which is substantially closer to the overall market gain while still providing a consistent income stream. DGRO serves as a link between income and growth in this simple three-ETF portfolio. It has greater upside potential than standard dividend ETFs while remaining focused on quality businesses with excellent fundamentals.
Simple ETF #3: VIG (Growth Engine With Dividend Discipline)
The Vanguard Dividend Appreciation ETF (VIG) is the third and final one that rounds out the portfolio by adding a stronger growth component. It tracks the Nasdaq U.S. Dividend Achievers Select Index. VIG focuses on companies that have consistently increased their dividends for at least 10 consecutive years, which often signals strong business models and durable earnings. Unlike SCHD, VIG has a higher allocation to technology and large-cap growth stocks, giving it more exposure to market leaders. This explains its performance over the past five years. VIG has returned 47.8%, outperforming both SCHD and DGRO, though still trailing the broader S&P 500.
Notably, the tech sector accounts for 22.5% of the overall fund, followed by finance (19.9%) and healthcare (16.7%). Its biggest holdings include Broadcom, Apple, Microsoft, Eli Lilly (LLY), J.P. Morgan Chase (JPM), Walmart (WMT), Visa (V), and MasterCard (MA), among others.
The VIG currently yields 1.6%, or $3.55 per share annually, which is nearly the same as the S&P 500. While its yield is lower than SCHD and DGRO, VIG compensates with stronger capital appreciation potential. It allows investors to participate in market upside while still maintaining a dividend-focused strategy.
In this balanced portfolio, VIG acts as a growth driver, offsetting the slower performance of more income-focused ETFs and keeping the overall approach forward-looking.
A Simple, Balanced Allocation
Separately, each of these ETFs serves a different purpose. However, when combined, they create a well-diversified portfolio that balances income, stability, and growth. A simple allocation plan would be 40% in SCHD, 30% in DGRO, and 30% in VIG.
While this portfolio may not outperform the S&P 500 during bull markets, it could offer investors a smoother ride, combining growth and income. However, the exact allocation will vary depending on individual risk profile and investment horizon.
On the date of publication, Sushree Mohanty did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. For more information please view the Barchart Disclosure Policy here.
