VYM vs SCHD: Which Dividend ETF Is Best for You?
We compare two of the biggest dividend ETFs on the market.
Dividend ETFs are among the most popular investment securities on the market with 172 exchange-traded funds to choose from. Two titans in this space are the Schwab U.S. Dividend Equity ETF (SCHD) and the Vanguard High Dividend Yield ETF (VYM).
After the largest dividend-focused fund, the Vanguard Dividend Appreciation ETF (VIG), SCHD and VYM round out the top three ETFs in this space, collectively holding over $210 billion in assets, which is nearly half of the total AUM for the entire category.
While SCHD and VYM both aim to provide exposure to high-quality, dividend-paying companies, the two funds differ in their investment strategies, composition, and appeal.
This article explores how each fund invests, the pros and cons of investing in them and how to decide which is best for your portfolio.
VYM: Vanguard High Dividend Yield ETF
VYM seeks to track the performance of the FTSE High Dividend Yield Index, focusing on largecap U.S. companies that pay above-average dividends. This ETF includes a diverse mix of over 500 stocks, with a heavy emphasis on sectors like financials and technology. The fund’s goal is to provide broad exposure to dividend-paying stocks while avoiding companies with excessively high payout ratios that could signal financial instability.
Key Stats:
- Dividend Yield: 2.68%
- Expense Ratio: 0.06%
- Assets Under Management: $61.3 billion
SCHD: Schwab U.S. Dividend Equity ETF
SCHD aims to track the Dow Jones U.S. Dividend 100 Index, which emphasizes dividend-paying companies with strong fundamentals, such as solid cash flow, high returns on equity and consistent dividend growth. SCHD’s portfolio is more concentrated, with about 100 holdings, and it leans heavily toward the quality and sustainability of dividends. Key sectors include financials, healthcare and consumer staples.
Key Stats:
- Dividend Yield: 3.70%
- Expense Ratio: 0.06%
- Assets Under Management: $67.9 billion
Tip: Use etf.com’s ETF comparison tool for a deeper VYM vs SCHD analysis.
VYM vs. SCHD: Side-by-Side Comparison
Metric | VYM | SCHD |
SEC Yield | 2.68% | 3.70% |
Expense Ratio | 0.06% | 0.06% |
AUM | $61.3B | $67.9B |
1-yr return | 20.31% | 12.80% |
3-yr return | 9.60% | 6.21% |
5-yr return | 10.85% | 11.57% |
10-yr return | 10.55% | 11.65% |
Data as of January 30, 2025. Past performance is no guarantee of future results.
VYM vs. SCHD: The Pros and Cons of Each Fund
While VYM and SCHD both offer investors many potential benefits, they also have some drawbacks to understand when comparing the dividend ETFs:
VYM Pros
- Diversification: With over 400 holdings, VYM provides broader exposure to the market, reducing company-specific risk.
- Reliable Income: The fund’s emphasis on high-dividend-paying blue-chip companies offers a stable income stream.
- Low Costs: Its 0.06% expense ratio makes it an affordable option for long-term investors.
VYM Cons
- Limited Dividend Growth: While the fund focuses on above-average yields, it may lack the robust dividend growth potential seen in other ETFs.
- Lower Concentration on Quality: VYM’s selection criteria prioritize yield over financial metrics, which could include companies with less reliable growth.
SCHD Pros
- Emphasis on Quality: SCHD’s focus on strong fundamentals ensures a portfolio of financially sound companies with sustainable dividends.
- Higher Dividend Growth: The ETF’s criteria favor companies with a history of consistent dividend increases.
- Concentration: With only 100 holdings, SCHD is more selective, potentially leading to stronger long-term performance.
SCHD Cons
- Less Diversification: Compared to VYM, SCHD’s smaller number of holdings may make it susceptible to market fluctuations.
- Defensive Leanings: SCHD’s heavier concentration in defensive sectors like health care and consumer staples may limit performance in the short term.
How To Choose the Right Dividend ETF for You
When deciding between VYM and SCHD, consider the following factors:
- Income vs. Growth: If you prioritize current income, VYM’s broader exposure to high-yield stocks may be appealing. If you seek a combination of high income and growth, SCHD’s emphasis on dividend sustainability and quality is a strong fit.
- Risk Tolerance: VYM’s diversified portfolio can help mitigate individual stock risks, while SCHD’s concentrated approach might suit those willing to accept higher sector-specific exposure for potentially greater returns.
- Investment Goals: For a stable, income-focused portfolio, VYM’s broad exposure to high-dividend payers is ideal. For a growth-oriented strategy with a focus on dividend increases, SCHD is likely the better choice.
- Time Horizon: Long-term investors looking for dividend growth may favor SCHD, while those seeking immediate and stable income might lean toward VYM.
Dividend ETFs 2025 Outlook
In 2025, dividend ETFs could draw increased interest due to a combination of economic uncertainty, higher-for-longer interest rates, and a potential shift toward value-oriented strategies. With the Federal Reserve maintaining elevated rates, traditional fixed income assets may face price pressure, making dividend-paying equities a more attractive income alternative.
Additionally, many high-quality dividend ETFs, such as VYM and SCHD, offer exposure to financially robust companies with strong cash flows and the ability to weather economic slowdowns, providing both income and defensive positioning. This blend of stability and income growth potential makes dividend ETFs particularly appealing in a challenging market environment.
As always, investing in equity exchange-traded funds is not without its risks. Investors are encouraged to do research and consider their risk tolerance and financial goals before buying shares in any investment.