VYM vs. SCHD: A Comparison of Two Popular Dividend ETFs

Both Vanguard High Dividend Yield ETF (VYM) and Schwab U.S. Dividend Equity ETF (SCHD) are popular dividend-focused exchange-traded funds (ETFs) that attract income-seeking investors. However, there are differences between the two in terms of their strategy, dividend yield, and underlying holdings.

1. Dividend Yield

VYM: As of the latest data, VYM offers a dividend yield of around 3.4%.

SCHD: SCHD offers a slightly higher dividend yield, around 3.7%.

2. Fund Strategy

VYM: This ETF focuses on large-cap U.S. stocks with above-average dividend yields, generally emphasizing companies that are well-established and have a track record of consistent dividend payments.

SCHD: SCHD focuses on high dividend-paying stocks but with a more fundamental screening process, looking for companies with a strong history of paying dividends and a focus on financial health (such as a low debt-to-equity ratio).

3. Holdings and Sector Exposure

VYM: VYM holds about 500 large-cap stocks with an emphasis on sectors like consumer goods, healthcare, and energy. It's less focused on growth compared to SCHD.

SCHD: SCHD typically holds about 100-150 stocks, with a focus on high dividend yield and dividend growth. It tends to have a slightly higher concentration in sectors like information technology, financials, and healthcare.

4. Performance and Risk

VYM: While VYM has a solid track record, it has historically delivered lower volatility compared to SCHD, making it a safer option for risk-averse investors. VYM's returns are typically a bit more stable, especially in market downturns.

SCHD: SCHD is more focused on dividend growth stocks, and although it has historically shown strong performance (including higher total returns than VYM), it can be more volatile due to its larger exposure to sectors like tech and financials.

5. Expense Ratio

VYM: VYM has an expense ratio of 0.06%, making it very low-cost.

SCHD: SCHD has an expense ratio of 0.06% as well, meaning both ETFs are relatively inexpensive to own.

6. Dividend Growth vs. High Yield

VYM: It’s more focused on current dividend yield than growth, meaning the companies in the fund might not have the strongest track record of increasing their dividends over time.

SCHD: SCHD puts more emphasis on dividend growth, so the companies in this ETF tend to have a longer history of increasing their dividends year over year. This can be appealing to investors looking for growing income.

7. Suitability for Different Investors

VYM: Ideal for investors looking for steady income with a broad, diversified portfolio of large-cap companies that offer high dividend yields. It may be a better choice for those who prioritize stability over growth.

SCHD: Best for investors looking for a balance of dividends and growth, especially those who prefer a higher dividend growth rate and are comfortable with slightly more volatility.

Summary:

VYM is a high dividend yield ETF with lower volatility and a focus on well-established, dividend-paying companies. It's a more conservative choice for income-seeking investors.

SCHD is a slightly higher-yielding ETF with a stronger emphasis on dividend growth and the potential for higher returns, but also higher volatility. It’s a good option for those looking for a blend of income and capital appreciation over the long term.

Ultimately, the choice between VYM and SCHD depends on your investment goals—whether you prioritize current yield and stability (VYM) or growth and potential for higher total returns (SCHD).