The artificial intelligence (AI) revolution is reshaping the software-as-a-service (SaaS) landscape, leading to what many industry observers are dubbing the SaaS-pocalypse. AI agents are increasingly taking on tasks such as managing customer relationships, analyzing data, generating reports, and even writing code. This shift is diminishing the need for costly subscription models that once dominated enterprise budgets. As a result, companies that have built their fortunes on recurring revenue are witnessing a sharp decline in demand, as firms redirect their spending toward AI infrastructure and open-source alternatives.
In just 2026, software stocks have seen a staggering loss of more than $1 trillion in value, with SaaS-focused companies plunging by 20% or more, while the broader market remains relatively stable. Valuations that once presumed unending growth are now crumbling under pressure from declining retention rates, budget adjustments, and the recognition that AI has the potential to replace entire suites of tools at a fraction of the cost.
In this turbulent environment, Vanguard’s dividend-oriented exchange-traded funds (ETFs) have emerged as a potential safeguard for investors. These funds, which focus on mature, cash-generating businesses, provide income, diversification, and a buffer against hype-driven market disruptions. Among the most reliable options are the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) and the Vanguard Dividend Appreciation ETF (NYSEARCA:VIG). Both funds feature low expense ratios, passive indexing, and wide exposure to companies that are less vulnerable to obsolescence from AI.
The Vanguard High Dividend Yield ETF tracks the FTSE High Dividend Yield Index, selecting U.S. companies that are anticipated to provide above-average dividends. With 562 stocks, the fund offers breadth that individual investors would find hard to achieve. Nearly 21% of its assets are in financials, followed by industrials at 13.8%, technology at 12.9%, and healthcare at 12.5%. This allocation leans towards real-economy sectors where AI is more likely to enhance rather than obliterate demand. For instance, banks require regulatory compliance and customer trust that algorithms alone cannot entirely fulfill, while energy companies are crucial for powering the data centers that drive the AI boom. Moreover, industrial and healthcare giants provide goods and services that software alone cannot easily replace.
The current 30-day SEC yield for the Vanguard High Dividend Yield ETF stands at 2.34%, providing a meaningful income cushion amidst broader capital appreciation challenges. Notable holdings include Broadcom (NASDAQ:AVGO) at 7%, JPMorgan Chase (NYSE:JPM) at 3.6%, and Exxon Mobil (NYSE:XOM) at 2.7%. These are not speculative investments, but rather cash-generating enterprises that have reliably returned capital to their shareholders. The ETF’s 10-year annualized total return of approximately 12.1% underscores its resilience across market cycles, often outperforming growth stocks during downturns. Year-to-date, the fund has delivered returns of around 7.5%, significantly outpacing many growth-focused benchmarks impacted by the recent SaaS reset.
For investors aiming for stability without compromising on upside potential, the Vanguard High Dividend Yield ETF offers a way to keep capital at work while minimizing taxable events.
The Vanguard Dividend Appreciation ETF takes a different approach by emphasizing quality over current yield. Following the S&P U.S. Dividend Growers Index, this fund owns 339 companies that have raised their dividends for at least ten consecutive years. This strategy naturally favors firms with durable competitive advantages, robust balance sheets, and management teams adept at increasing payouts through various economic cycles, including the current upheaval prompted by AI.
Information technology constitutes about 26% of the ETF, but only includes firms with proven dividend histories, such as Microsoft (NASDAQ:MSFT), Apple (NASDAQ:AAPL), and Broadcom. Financials make up 21.5%, healthcare is at 16.3%, industrials at 11.7%, and consumer staples are at 10%. Although the current SEC yield is lower at 1.55%, the historical dividend growth rate averages roughly 8% annually for the underlying companies, providing a compounding effect that can outpace inflation over time. The ETF boasts ten-year annualized returns of approximately 13.6%, driven by superior stock selection that avoids short-term fads.
Current top holdings include Broadcom at 6.26%, followed by Apple, Microsoft, and Eli Lilly (NYSE:LLY). These companies may not be immune to AI disruption, but they are actively integrating the technology into their operations, enhancing their products rather than facing obsolescence. For example, Eli Lilly utilizes AI in drug discovery while its core revenues from patented drugs remain stable. Payment networks like Visa (NYSE:V) and Mastercard (NYSE:MA) handle trillions in transactions that AI may expedite but cannot entirely replace.
The ETF’s low expense ratio of 0.04% and a modest turnover rate of 11.1% help keep costs down and tax implications minimal. By focusing on consistent dividend growth rather than merely high yield, the fund tends to invest in higher-quality companies with lower payout ratios, granting them more flexibility to increase distributions in the future. In a market where SaaS valuations are being severely recalibrated, this focus on earnings resilience and capital returns offers both a protective cushion against downturns and the potential for gains during any eventual market recovery.
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