The Vanguard High Dividend Yield Index ETF (VYM) and the Schwab U.S. Dividend Equity ETF (SCHD) are two of the U.S. market’s largest and most successful dividend ETFs. Both come from renowned investment firms and feature strong portfolios of blue-chip dividend stocks. In addition, they have low-cost expense ratios, as you would expect from firms known for their cost-effective offerings. Even better, both feature perfect 10 ETF Smart Scores from TipRanks’ Smart Score system.
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While both are strong choices for investors, which is the better pick in this head-to-head comparison?
What Is the VYM ETF’s Strategy?
Launched in 2006, VYM is a popular dividend ETF from low-cost index fund giant Vanguard with over $60 billion in assets under management (AUM).
According to Vanguard, VYM tracks an index “which measures the investment return of common stocks of companies characterized by high dividend yields.”
What Is the SCHD ETF’s Strategy?
SCHD was started in 2011 and has grown slightly larger than VYM, with $65.8 billion in AUM.
According to its sponsor, Charles Schwab (SCHW), SCHD “tracks an index focused on the quality and sustainability of dividends.” SCHD “invests in stocks selected for fundamental strength relative to their peers, based on financial ratios.”
Assessing VYM’s Portfolio
VYM is quite diversified, holding 538 stocks. Its top 10 holdings make up just 24.7% of the fund.
Below, you can gain an overview of VYM’s top 10 holdings using TipRanks’ holdings tool.
VYM’s top 10 holdings include a mix of blue-chip dividend stocks from sectors well-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 largest holding is semiconductor stock Broadcom (AVGO). While it may seem odd that a tech stock yielding just 1.3% is the top holding for a high dividend fund like VYM, Broadcom has been a good holding for VYM and is an underrated dividend stock. Broadcom has paid a dividend and increased the size of its payout for the past 13 years in a row. Furthermore, it has generated a phenomenal total annualized return of over 2,300% over the past decade, benefitting VYM and its holders.
Taking a Look at SCHD’s Portfolio
SCHD isn’t quite as diversified as VYM; it holds 101 stocks. It’s also more concentrated as its top 10 holdings account for 40.7% of its portfolio; however, this is still a reasonable sum.
You can take a look at SCHD’s top 10 holdings using the table below.
Like VYM, SCHD owns many tried-and-true blue-chip dividend stocks like Altira (MO), Chevron (CVX), and Bristol-Myers (BMY).
Its top holding is BlackRock (BLK), the world’s largest investment manager by assets. Like Broadcom, BlackRock may seem somewhat out of place as the top holding for a dividend fund with a yield of 1.9%, but it is a strong dividend stock in its own right. BlackRock has paid dividends for the past 20 years, and increased the size of its dividend payout for 14 consecutive years and counting. BlackRock has posted an impressive total return of nearly 290% over the past decade.
Head-to-Head Performance
These two ETFs have both been strong performers over a long time horizon.
VYM has had a strong annualized return of 9% over the past three years (as of October 31), beating SCHD’s annualized return of just 6.7% over the same time period.
Zooming further out, VYM has an impressive 10.8% annualized return over the past five years (as of October 31). However, SCHD 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 returned 9.9% over the past 10 years (as of October 31). SCHD edges out VYM with an annualized return of 11.5% over the same time horizon.
VYM has been the better performer over the past three years, but I’ll give the edge to SCHD here based on its better performance over the longer five- and 10-year time spans.
Comparison of Dividends
VYM features 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 yield of 3.4%.
Both ETFs have strong track records of paying dividends and increasing the size of their payouts. VYM has paid a dividend for 17 years in a row (going back to its inception) and increased this payout for the last 13 years in a row. On the other hand, SCHD has paid dividends for 12 years in a row and increased its payout in each of these years, dating back to its own inception.
These funds both pay above-average dividends, and both have long-term track records of consistently paying and increasing the size of their dividends, but I give the edge to SCHD here based on its higher yield.
Cost Comparison
Notably, both VYM and SCHD feature identical expense ratios of just 0.06%. This means that an investor putting $10,000 into either fund will pay just a paltry $6 in fees on the investment annually.
Taking advantage of low-cost funds like VYM and SCHD is 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 either ETF would pay just a mere $77 in fees over the course of the next 10 years.
Is VYM Stock a Buy, According to Analysts?
Turning to Wall Street, VYM earns a Hold consensus rating based on 651 Buys, 370 Holds, and 54 Sell ratings assigned in the past three months. The average VYM stock price target of $157.49 implies 20.5% upside potential from current levels.
Is SCHD Stock a Buy, According to Analysts?
Similarly, SCHD earns a Hold consensus rating based on 104 Buys, 85 Holds, and 12 Sell ratings assigned in the past three months. The average SCHD stock price target of $33.49 implies 17.0% upside potential from current levels.
Who Wins?
These two dividend ETFs have a lot in common. They have similar AUM and feature identical expense ratios. Both feature portfolios full of well-known, blue-chip dividend stocks, albeit with some different selections. Both feature strong track records of consistently paying and growing their dividends and above-average dividend yields, but with little separating these two ETFs, SCHD’s superior yield of 3.4% (versus VYM’s 2.8%) makes it the better choice for dividend investors at this point in time.
Furthermore, while both ETFs have been strong performers over the years, and VYM has outperformed SCHD in recent years, SCHD has outperformed VYM over the past five and 10 years, making it the winner when it comes to long-term performance and the overall winner in this head-to-head matchup between top dividend ETFs.
