Dividends are likely not the first thing that comes to mind when investors think of the behemoth companies at the forefront of the artificial intelligence boom. With the enormous spending required for the ongoing AI buildout, it would be fair to assume these firms give short shrift to returning cash to shareholders. While plenty of AI-focused companies follow that pattern, by either not paying a dividend or paying dividends so small they should be considered nominal, these companies represent only part of the picture. Some AI-oriented companies have a long history of issuing dividends.
Why does this matter to exchange-traded fund investors? Investors may find AI stocks among the largest holdings in their dividend-focused funds. Because these types of funds have historically had a value orientation, large positions in a growth-oriented theme like AI could come as a surprise. Assumptions that dividend funds will serve as a hedge against any blips in the AI boom may not hold true.
Broadly, dividend ETFs take either a yield-focused or growth-focused approach to building their portfolios, with some using a blend of the two.
Funds that prioritize dividend growth look for companies that consistently raise their payout. These funds don’t chase stocks with high dividend yield. Instead, they target financially healthy companies that have shown a history of raising their payouts over time. These funds may use profitability metrics to increase their chances that the stocks they hold will continue to raise their dividend payments.
Vanguard Dividend Appreciation ETF VIG is a prime example of a dividend-growth ETF that requires holdings to have a sustained history of increasing their cash payouts.
Dividend-yield strategies target stocks paying higher distributions. These funds tend to hold mature companies that distribute larger portions of their profits to shareholders, rather than reinvesting them back into their businesses. This style of fund generally has a value orientation, as it shies away from high-priced stocks.
Vanguard High Dividend Yield ETF VYM exemplifies the dividend yield-focused approach. State Street SPDR S&P Dividend ETF SDY takes a similar approach by requiring holdings to have a long history of paying dividends and then weighting eligible stocks by their annual dividend yield, producing a high-yielding portfolio.
Some dividend ETFs, such as Schwab U.S. Dividend Equity ETF SCHD and Fidelity High Dividend ETF FDVV, consider both dividend growth and dividend yield when constructing their portfolios. However, both still end up with a higher yield than the market. The Schwab ETF tends to focus on mature companies while shying away from tech stocks with short dividend histories. The Fidelity ETF, on the other hand, ties its sector weightings to the broader market, so it can hold large positions in stocks with small yields. The ETF still aims for a higher yield than the market, but its approach can hold back its dividend yield from what it would be otherwise.
Differences in dividend policies at large tech and AI-related companies determine how they fit into dividend ETFs.
The first category consists of consistent, longtime dividend payers. These companies typically have paid or increased their dividends for a decade or longer. Broadcom AVGO, Microsoft MSFT, and Oracle ORCL belong to this group. While these companies’ dividends are not typically market-leading, they do have a steady track record of issuing distributions.
Firms that started issuing dividends within the past few years make up the second category. This group of companies includes Meta META and Alphabet GOOGL. Both of them issued their first dividend in 2024. These stocks tend to have lower yields than companies in the first group.
The third group is made up of companies that either issue no dividends whatsoever or issue dividends small enough that their stocks’ dividend yields are minor. Amazon.com AMZN and Advanced Micro Devices AMD reside in this group, as does Nvidia NVDA.
Those policies help explain which AI stocks land in dividend funds, and what types of dividend funds are prone to favoring large tech companies. The table below shows some examples of dividend ETFs and some of the AI stocks that they hold.
AI-related stocks with a long history of increasing their dividend payments can easily find their way into dividend-growth ETFs. They don’t have high yields, but that doesn’t matter, as dividend-growth ETFs only care about payouts that consistently increase. Dependable dividend payers, like Microsoft and Broadcom, appear most often. As of Sept. 30, 2026, both were among the largest holdings in Vanguard Dividend Appreciation ETF.
The duo also found their way into Capital Group Dividend Value ETF CGDV and JPMorgan Dividend Leaders ETF JDIV, though for different reasons. Both ETFs are actively managed, so the decision to hold these stocks and the weighting they receive are at the discretion of each ETF’s managers.
Broadcom has not only consistently raised its dividend payouts, but its yield was sufficiently high to qualify for the yield-focused ETFs such as Vanguard High Dividend Yield ETF.
Companies that have recently started issuing dividends, such as Meta and Alphabet, don’t show up quite as often. Both stocks are in the top 10 holdings for Capital Group’s Dividend Value ETF, which seems more attributable to the discretionary element of the strategy’s process rather than to the stock’s pure dividend credentials. Alphabet is also a top holding in Fidelity High Dividend ETF and JPMorgan Dividend Leaders ETF, both of which consider dividend growth when constructing their portfolios.
Nvidia is a top holding for three of the funds. Two are actively managed strategies, while Fidelity High Dividend ETF tracks an index. Nvidia’s extremely strong profitability, combined with its recent dividend growth, makes it an attractive pick for funds looking for stocks that can sustainably increase their payouts. However, its low yield prevents the stock from qualifying for many of the passive high-dividend-yield ETFs.
As expected, companies like Amazon and Advanced Micro Devices, which don’t issue regular dividends, fail to make the cut for any of these ETFs. The actively managed Capital Group Dividend Value ETF holds Amazon, but as a smaller position than the market.
Investors looking for a dividend fund that also offers substantial AI exposure have some options. They can opt for a pure dividend growth fund, like Vanguard Dividend Appreciation ETF. Another option is Fidelity High Dividend ETF, which uses a weighting scheme that tilts the fund more toward the tech sector than other dividend strategies. AI-hungry investors can also consider an actively managed dividend fund, like Capital Group Dividend Value ETF or JPMorgan Dividend Leaders ETF. These strategies hold steady dividend payers, like Microsoft and Broadcom, while also giving their portfolio managers some leeway to invest in stocks like Nvidia and Alphabet, whose revenue growth could support higher future dividends.
Conversely, investors who want to diversify away from AI are best served by dividend-yield funds like Vanguard High Dividend Yield ETF or State Street SPDR S&P Dividend ETF. These funds limit their exposure to high-priced AI stocks and maintain relatively modest exposure to the broader technology sector. Strategies that prioritize yield and require a long, continuous history of dividend payouts, like Schwab U.S. Dividend Equity ETF, could be a fit as well.
Investors can use dividend ETFs in a variety of ways. These funds can deepen exposure to the AI trade, provide more measured allocations to the sector, or serve as a hedge against a downturn in tech stocks. Investors should be aware of how a fund is constructed and whether it is targeting dividend yield, dividend growth, or some combination of the two.
The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar’s editorial policies.
