Dividend growth, high-yield ETFs/stocks, and the evolving role of active managers versus passive/index funds

In 2025, the landscape of income investing is experiencing a notable shift, driven by the ongoing debate over the value of active management versus passive index strategies in a market increasingly dominated by low-cost ETFs. Recent performance data shows that fewer active managers are outperforming their benchmarks, with only about 35% of active funds beating their indices in 2024, down from 45% five years prior. This trend underscores a broader reevaluation: while passive funds like SPY and QQQ continue to capture the majority of investor allocations due to their cost efficiency, active managers are finding their role evolving from primary outperformers to strategic partners within diversified portfolios.

The core event of 2025 is the resurgence of dividend growth and high-yield strategies, offering income investors new opportunities amid economic uncertainties. Companies such as Equinix Inc (EQIX) exemplify this trend, recently announcing a quarterly dividend increase from $4.69 to $5.16 per share, signaling confidence in their robust earnings and long-term stability. Similarly, funds like Schwab's high-dividend ETF announced a 12% dividend hike, reinforcing the appeal of dependable passive income streams for retirees and income-focused investors.

Comparing yield strategies, ETFs like SPYH and QQQH provide high-yield exposure linked to broad indices—the S&P 500 and Nasdaq 100—aiming to deliver elevated dividend income while maintaining diversified market exposure. In contrast, JEPI and JEPQ are actively managed ETFs that emphasize income stability and downside protection through options strategies and targeted holdings, appealing to more conservative investors seeking consistent cash flow. A recent YouTube review titled "Are SPYH & QQQH Better than JEPI & JEPQ?" highlights that while SPYH and QQQH may offer higher yields, JEPI and JEPQ prioritize risk mitigation and income stability, making them suitable for different investor profiles.

Retirement-focused investors are increasingly turning to high-yield ETFs designed to provide steady income over the coming years. Notable options include Vanguard High-Yield Dividend ETF (VYM), iShares Select Dividend ETF (DVY), and SPDR Portfolio S&P 500 High Dividend ETF (SPYD). These funds invest in diversified high-yield assets like dividend-paying equities, preferred stocks, and fixed-income securities, balancing yield with lower volatility—a critical consideration as interest rates fluctuate and economic uncertainties persist.

However, the pursuit of ultra-high-yield stocks remains a high-risk, high-reward strategy. Investing just $10,000 into five such stocks could theoretically generate around $5,500 annually, yielding over 50%. These stocks often feature dividend yields above 10-15%, particularly in sectors like energy, real estate, and financials. Nonetheless, dividend cuts and stock price declines serve as stark reminders of the risks involved. For example, a recent case highlighted a 50% dividend reduction accompanied by a 16% stock decline, illustrating how ignoring warning signs such as declining earnings or rising debt can lead to significant income erosion.

In light of these risks, investors are encouraged to adopt a balanced approach:

• Maintain a diversified core with low-cost index funds (e.g., VOO, SPY) to ensure broad exposure and cost efficiency.
• Incorporate targeted active management or niche ETFs that offer tactical flexibility and access to less efficient markets.
• Include income-focused ETFs like JEPI, JEPQ, or high-dividend funds to generate reliable cash flow.
• Regularly monitor financial health indicators and sector trends to identify potential dividend sustainability issues.

The evolving role of active managers is now seen less as outperformers and more as strategic allies in navigating complex markets. Their flexibility, sector expertise, and niche access can add value, especially when combined with the stability of passive core holdings. As one industry expert notes, "In a landscape where broad market returns are challenging to beat, active managers serve as tactical partners for adjustments and niche opportunities."

Outlook for 2025 and beyond indicates that passive strategies will remain dominant in terms of sheer performance, but active management retains a vital role within diversified portfolios. Investors who combine passive ETFs with selective active strategies and income-focused assets, while remaining vigilant to warning signs, are better positioned to generate sustainable income and manage risks amid ongoing economic uncertainties.

In summary, the current environment offers a promising opportunity for income investors to build resilient portfolios by blending dividend-growth stocks, high-yield ETFs, and cautious selection of ultra-high-yield stocks. Staying informed, disciplined, and strategic—viewing active managers as collaborators rather than competitors—will be key to achieving long-term income stability and growth in this evolving market landscape.