The Vanguard High Dividend Yield Index ETF (VYM) and the Schwab US Dividend Equity ETF (SCHD) are two of the largest and most successful dividend ETFs in the US market. Both come from reputable investment firms and have strong portfolios of premium dividend stocks. Plus, they have low expense ratios, as you would expect from companies known for their cost-effective offerings. In fact, both boast perfect 10 ETF Smart Scores from TipRanks’ Smart Score system.
While both are strong choices for investors, which is the better choice in this head-to-head comparison?
Launched in 2006, VYM is a popular dividend ETF from low-cost index fund giant Vanguard with more than $60 billion in assets under management (AUM).
According to Vanguard, VYM tracks an index “that measures the investment returns of common stocks of companies characterized by high dividend yields.”
Founded in 2011, SCHD has grown slightly larger than VYM, with $65.8 billion in assets under management.
According to sponsor Charles Schwab (SCHW), SCHD tracks “an index that focuses on the quality and sustainability of dividends.” SCHD “invests in stocks selected for fundamental strength relative to their peers, based on financial ratios.”
VYM is quite diversified and owns 538 stocks. The top 10 investments represent only 24.7% of the fund.
Below you can get an overview of VYM’s top 10 holdings using TipRanks’ holdings tool.
VYM’s top 10 consists of a mix of top dividend stocks from industries known for their dividends, including healthcare mainstays like Johnson & Johnson (JNJ), Merck (MRK) and AbbVie (ABBV), energy giant ExxonMobil (XOM) . , and financial behemoth JPMorgan (JPM).
However, VYM’s biggest holding is semiconductor stock Broadcom (AVGO). While it may seem strange that a technology stock with a yield of just 1.3% is the top holding for a high-dividend fund like VYM, Broadcom was a good holding for VYM and an undervalued dividend stock. Broadcom has paid a dividend and increased the size of its payout for the past 13 consecutive years. Furthermore, it has generated phenomenal annualized total returns of over 2,300% over the past decade, benefiting VYM and its holders.
SCHD is not as diversified as VYM; it owns 101 shares. It is also more concentrated, with the top 10 holdings representing 40.7% of the portfolio; however, this is still a reasonable amount.
You can view the top 10 SCHD holdings using the table below.
Like VYM, SCHD owns many proven top dividend stocks such as Altira (MO), Chevron (CVX), and Bristol-Myers (BMY).
Its main holding company is BlackRock (BLK), the world’s largest asset manager by assets. Like Broadcom, BlackRock may seem somewhat out of place as a top pick for a dividend fund with a 1.9% yield, but it is a strong dividend stock in its own right. BlackRock has paid dividends for the past twenty years and has increased its dividend payout size fourteen years in a row. BlackRock has delivered an impressive total return of nearly 290% over the past decade.
These two ETFs have both delivered strong performance over long time horizons.
VYM has delivered a strong annualized return of 9% over the past three years (as of October 31), surpassing SCHD’s annualized return of just 6.7% over the same period.
Zooming out further, VYM has an impressive annualized return of 10.8% over the past five years (as of October 31). However, SCHD has flipped the script and has outperformed VYM over the past five years with an even better five-year annualized return of 12.7%.
VYM has achieved a return of 9.9% over the past 10 years (as of October 31). SCHD outperforms VYM with an annualized return of 11.5% over the same time horizon.
VYM has outperformed over the past three years, but I’m giving SCHD the edge here based on its better performance over the longer five- and 10-year periods.
VYM offers a solid dividend yield of 2.8%, double the S&P 500’s current yield of 1.4%.
However, SCHD beats it in this category with a higher return of 3.4%.
Both ETFs have a strong track record of paying dividends and increasing the size of their payouts. VYM has paid a dividend for 17 years in a row (going back to inception) and has increased this payout for the past 13 years in a row. On the other hand, SCHD has paid dividends for twelve years in a row and increased its payout in each of those years since its inception.
These funds both pay above-average dividends, and both have a long-term track record of consistently paying out and increasing the size of their dividends, but I’m giving SCHD the edge here based on its higher yield.
Notably, both VYM and SCHD have identical expense ratios of just 0.06%. This means that an investor who invests €10,000 in either fund will only pay a paltry €6 in fees on the investment each year.
Taking advantage of low-cost funds like VYM and SCHD is the key to growing and safeguarding your wealth over time. Assuming the funds return 5% per year going forward and maintain their current expense ratios, an investor in both ETFs would pay just $77 in fees over the next ten years.
As for Wall Street, VYM earns a consensus rating of Hold based on its ratings of 651 Buys, 370 Holds, and 54 Sells assigned in the last three months. The average VYM stock price target of $157.49 implies 20.5% upside potential from current levels.
Likewise, SCHD earns a Hold consensus rating based on 104 Buys, 85 Holds, and 12 Sell ratings assigned in the last three months. The average SCHD stock price target of $33.49 implies 17.0% upside potential from current levels.
These two dividend ETFs have a lot in common. They have similar assets under management and identical expense ratios. Both have portfolios full of well-known, high-quality dividend stocks, albeit with some different selections. Both have strong track records of consistently paying and growing their dividends and above-average dividend yields, but with little to separate these two ETFs, SCHD’s superior yield of 3.4% (vs. VYM’s 2.8% ) it is currently the better choice for dividend investors. on time.
Additionally, while both ETFs have had strong performances over the years and VYM has outperformed SCHD in recent years, SCHD has outperformed VYM over the past five and ten years, making it the winner when it comes to long-term performance and the overall winner in this head-to-head matchup of top dividend ETFs.
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