SCHD vs. VYM: Which Dividend ETF Delivers Superior Income?

Key Points

• The Schwab U.S. Dividend Equity ETF has delivered stronger 1-year total returns, whereas the Vanguard fund has demonstrated superior growth over a five-year horizon.

• The Vanguard High Dividend Yield ETF provides a lower expense ratio and broader diversification across nearly 600 holdings.

• The Schwab fund currently offers a higher trailing dividend yield of 3.1%, compared to 2.8% for the Vanguard fund.

Schwab U.S. Dividend Equity ETF (NYSEMKT:SCHD) offers a higher trailing yield and stronger recent returns, while Vanguard High Dividend Yield ETF (NYSEMKT:VYM) provides lower fees and broader diversification.

These two funds are premier choices for investors seeking consistent income from domestic equities. Although both target companies with a history of substantial payouts, their differing screening criteria produce distinct portfolio behaviors. With total assets under management (AUM) exceeding $100 billion each, they serve as core holdings for many dividend-focused investors. Analyzing their cost structures and sector tilts reveals which strategy better aligns with long-term objectives.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500; beta is calculated from monthly returns over the available fund history (up to five years). The 1-yr return represents total return over the trailing 12 months. Dividend yield is the trailing-12-month distribution yield.

The Vanguard fund holds a slight edge in affordability with its 0.04% expense ratio. Conversely, the Schwab fund provides a higher payout, with a trailing dividend yield that currently sits 0.28 percentage points above its competitor.

Performance & risk comparison

What’s inside

The Schwab U.S. Dividend Equity ETF emphasizes quality and sustainability by tracking an index of 102 stocks selected based on cash flow to debt, return on equity, and dividend growth rate. Its largest positions include Qualcomm at 4.83%, Texas Instruments at 4.45%, and Coca-Cola at 4.16%. The portfolio is concentrated in healthcare (21%), consumer defensive (20.4%), and energy (14%). Launched in 2011, the fund has paid $1.05 per share over the trailing 12 months, translating to a 3.1% yield on its recent ~$33.68 share price.

The Vanguard High Dividend Yield ETF offers broader diversification by holding over 600 stocks across various industries. Its top holdings include Broadcom at 6.9%, JPMorgan Chase at 3.83%, and ExxonMobil at 2.70%. The fund is more heavily weighted toward financial services at 21%, followed by technology and industrials at 17% each. Launched in 2006, it has paid $4.52 per share over the trailing 12 months, which on its recent ~$159.26 share price equates to a 2.8% yield.

Which looks like the better buy

VYM and SCHD rank among the most popular ETFs for investors building positions in dividend index funds. While both feature low expense ratios and comparable dividend yields, their one- and five-year performances present a mixed picture, largely dictated by the indexes they track.

SCHD seeks to track the Dow Jones U.S. Dividend 100 Index, whereas VYM tracks the FTSE High Dividend Yield Index. This distinction is important for two reasons. First, it results in SCHD holding a much narrower portfolio of just over 100 stocks, compared to VYM’s 600-stock portfolio. Second, SCHD screens for both dividend yield and financial quality, including dividend growth, while VYM focuses solely on high yield without a quality screen.

There is no doubt that SCHD’s 3.1% dividend yield surpasses VYM’s 2.8%, and it has also delivered a significantly stronger one-year return. However, its primary risk lies in its concentration, which can lead to larger price swings in both directions.

Source link