Stripping the Magnificent 7 from the S&P 500 sounds like a contrarian bet, but it has quietly outperformed the full index so far in 2026. The question for income-focused investors is whether the dividend that comes with this strategy is worth building around.
Defiance Large Cap ex-Mag 7 ETF (NASDAQ:XMAG) holds the S&P 500 with one deliberate omission: Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla are all excluded. What remains is roughly 490 large-cap companies long overshadowed by the Magnificent 7’s gravitational pull. The fund carries a 0.35% expense ratio and has turned over just 7% of its portfolio, signaling a passive, low-friction approach. Net assets stand near $142 million, which is modest and worth monitoring, as funds below $50 million face elevated closure risk.
How XMAG Generates Income
This is a straightforward equity ETF. Income comes entirely from dividends paid by underlying holdings. There are no options strategies, no leverage, no synthetic structures. When a holding like Exxon Mobil or Johnson & Johnson pays a quarterly dividend, XMAG collects its proportional share and passes it through to shareholders.
The fund’s trailing dividend yield is 1.2%, which is low for a strategy marketed around dividend income. XMAG has paid distributions only twice since its October 2024 inception: $0.047 in December 2024 and $0.116 in December 2025. The income stream is real but thin.
What the Portfolio Actually Looks Like
Without the Magnificent 7, the sector map shifts considerably. Information technology still leads at 21%, followed by financials at 16% and healthcare at 14%. The top holding is Broadcom at 3.85%, a semiconductor company with explosive AI revenue growth but a yield that contributes modestly to the fund’s income. JPMorgan Chase sits at 1.94%, Exxon Mobil at 1.71%, Johnson & Johnson at 1.49%, and Walmart at 1.40%.
The dividend picture across the anchors is genuinely strong. Johnson & Johnson raised its dividend for its 63rd consecutive year in 2025, paying $1.30 per quarter. Exxon Mobil has grown its annual dividend for 43 consecutive years, with the current quarterly rate at $1.03. JPMorgan Chase has raised its payout consistently, now at $1.50 per quarter, backed by full-year 2025 EPS of $20.02. Broadcom has raised its dividend every year since 2011, with the current quarterly rate at $0.65, supported by free cash flow of $8.0 billion in its most recent quarter alone.
The individual dividends are safe. The problem is that holdings are spread thin. No single position tops 4%, so even a generous payer like Exxon contributes only a sliver of the fund’s total income.
The Real Story: Total Return, Not Yield
Excluding the Magnificent 7 has been a relative winner in 2026. XMAG is down less than 1% year-to-date, while the full S&P 500 via SPY has dropped nearly 4%. The Roundhill Magnificent Seven ETF, which holds only those seven names, has fallen nearly 12% year-to-date. Investors skeptical of AI-driven valuations have found a real edge here.
Over the trailing year, XMAG has returned 13.7%, compared to 16.2% for SPY. The price performance is reasonable, but the yield adds little on top of it.
Durable Dividends, Thin Yield, and a Size Risk to Watch
XMAG’s underlying dividends are durable. The companies anchoring the portfolio, from JPMorgan to Exxon to Johnson & Johnson, have decades of consistent payout histories and the cash flow to back them.
At 1.2%, the yield is simply a byproduct of owning large-cap equities, not a meaningful income strategy. Investors drawn to XMAG for its ex-Mag 7 positioning and total return potential will find a coherent thesis. Those seeking meaningful income will need to look elsewhere. The fund’s modest AUM also represents a closure risk that long-term holders should monitor, and low trading volume can make it harder to buy or sell large positions without moving the price.
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