With rate cut hopes hogging the limelight, dividend-based ETFs might finally be experiencing their comeback time.

Investors are growing fond of high-yielding equity plays such as the Vanguard High Dividend Yield ETF (NYSE:VYM) and Schwab U.S. Dividend Equity ETF (NYSE:SCHD), as new labor market reports spark bets on a pivot by the Federal Reserve. With the bond market already pricing in a rate reduction through September, and another likely in December, the old advantage of fixed-income yield may be waning, highlighting dividend-paying stocks again.

The catalyst? Wednesday’s ADP employment report, which revealed private employers lost 33,000 jobs in June, a surprising miss that represented the first contraction in more than two years. The steep drop fanned hopes the Fed will have to loosen policy ahead of schedule.

Dividend ETFs are likely to sparkle when interest rates decline and investors look for defensive growth with regular cash flows. With inflation more-or-less stable and employment growth slowing (first monthly contraction since March 2023), SCHD and VYM look like the Goldilocks choices — neither too risky nor too dull.

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Why It Matters

SCHD and VYM tilt toward stable, cash-surplus companies in sectors like consumer staples, healthcare and financials. They go for businesses that usually perform better in soft-landing or late-cycle situations.

In Thursday trading, SCHD crept 0.15% higher and VYM gained 0.6%, small moves that might hide a larger rotation underway in the background.

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