Investors often seek a growing passive income stream for a future retirement. Alternatively, some people want to invest a lump sum to meet monthly living expenses with dividend income.
An excellent source of income is dividends from companies. However, researching and following a portfolio of dividend stocks takes time. Consequently, asset managers have created low-cost exchange-traded funds (ETFs), allowing investors to meet their goals. This article will compare DGRO vs. VYM as two possible portfolio choices.
DGRO and VYM are different ETFs from BlackRock and Vanguard, respectively, the two largest ETF fund managers. The objectives of the funds and the underlying indices are different. DGRO is the iShares Core Dividend Growth ETF, and VYM is the Vanguard High Dividend Yield ETF. They both focus on dividends, but the goals are not the same, resulting in varying attributes.
We will discuss the characteristics, similarities, and differences between DGRO and VYM and help you decide which to add to a portfolio.
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Dividend Growth or High Yield ETF?
Investors building a passive income stream usually focus on dividend growth or high yield, depending on their preferred strategy. Dividend growth investors like equities increasing their dividends annually. On the other hand, high-yield investors like income stocks with above-average yields. Both approaches can work overtime, but success depends on persistence and not overpaying.
Some people like ETFs over stocks because of their simplicity. A person buys one low-cost fund and achieves instant diversification. Moreover, they do not need to track a dividend stock portfolio or research each equity.
DGRO and VYM are two of the most popular dividend-type ETFs with billions in assets under management. They have a solid performance, decent yields, and relatively low costs. These two ETFs would be a nice addition to most portfolios.
DGRO: iShares Core Dividend Growth ETF
The iShares Core Dividend Growth ETF (DGRO) is brought to us by BlackRock. It is part of their iShares line of ETFs. The fund follows the Morningstar US Dividend Growth Index, containing U.S. stocks with a consistent dividend growth history. The companies in the tracking index have increased their dividends for at least five consecutive years. Hence, they are, at a minimum, on the Dividend Challengers list.
The DGRO fund is not yet ten years old, with an inception date of June 10, 2014. A moderate expense ratio of 0.08% means the fund costs $8 for every $10,000 invested. The minimal expense ratio makes it a solid choice to add to a portfolio. The 30-Day SEC yield is 2.51%. Additionally, the ETF’s dividend generally rises annually by virtue of owning dividend growth stocks.
Holdings in DGRO
The fund owns 428 holdings, giving diversification across sectors and industries. However, DGRO owns only 10 of the 11 sectors, excluding Real Estate. Total assets under management (AUM) are approximately $22.91 billion, making the DGRO the second largest of the top dividend growth ETFs, behind the much larger VIG ETF.
DGRO has appreciable assets in the Healthcare (19.52%), Financials (18.93%), and Information Technology (15.22%) sectors. Assets in these three growth sectors total more than half the holdings at about 53.67%. Industrial and Consumer Stapes round out the top five.
The ETF tends to own large-cap and mega-cap stocks that pay growing dividends, especially in the top 10. But it does own equities with a smaller market capitalization, too. The fund’s top 10 stock weightings change only slightly month-to-month.
The top 10 holdings of DGRO:
| Ticker | Company | Weighting (%) |
|---|---|---|
| XOM | Exxon Mobil | 3.08% |
| JPM | JP Morgan & Chase | 2.94% |
| MSFT | Microsoft | 2.89% |
| JNJ | Johnson & Johnson | 2.81% |
| APPL | Apple | 2.75% |
| CVX | Chevron | 2.72% |
| ABBV | Abbvie | 2.70% |
| PFE | Pfizer | 2.14% |
| PG | Proctor & Gamble | 2.11% |
| HD | Home Depot | 1.95% |
The top 10 holdings make up about 26.09% of the fund.
Vanguard High Dividend Yield ETF (VYM)
The Vanguard High Dividend Yield ETF (VYM) is a Vanguard fund. The firm is famous for its low-cost index funds. This ETF seeks to track the performance of the FTSE High Dividend Yield Index. It has 462 stocks, the same as the benchmark. The VYM ETF does not have a dividend growth mandate, instead, it usually invests in higher-yielding equities.
The VYM fund is several years older than DGRO, with an inception date of November 10, 2006. Like all Vanguard funds, it has a minimal expense ratio of 0.06%, costing investors $6 for every $10,000 in the fund. The 30-day SEC yield is higher than DGRO at 3.20%.
Holdings in VYM
The AUM is roughly $61.7 billion, making VYM much larger than DGRO. The ETF owns ten of the 11 sectors, excluding Real Estate. However, the top three sectors are more value-oriented, with about 19.5% in Financials, 12.9% in Consumer Staples, 12.4% in Healthcare, and 12.4% in Industrials. Energy is the fifth largest one. The top three sectors have around 53.7% of total assets, similar to DGRO.
The VYM ETF owns value and growth stocks but has more of a large-cap value tilt. It includes many well-known names popular with retail investors. The stocks in the top 10 change only slowly.
The top 10 holdings of VYM:
| Ticker | Company | Weighting (%) |
|---|---|---|
| XOM | Exxon Mobil | 3.33% |
| JPM | JPMorgan & Chase | 3.16% |
| JNJ | Johnson & Johnson | 2.87% |
| AVGO | Broadcom | 2.78% |
| PG | Procter & Gamble | 2.68% |
| HD | Home Depot | 2.47% |
| CVX | Chevron | 2.10% |
| MRK | Merck & Co | 2.04% |
| ABBV | AbbVie | 1.91% |
| PEP | Pepsico | 2.03% |
The top 10 holdings make up about 25.37% of the fund.
Similarities: DGRO vs. VYM
Because DGRO and VYM invest in large-cap dividend stocks, they have similarities, especially regarding sectors and stock ownership. Both are good ETFs to hold.
- Low-cost passively managed ETFs.
- Own dividend stocks.
- Grow a passive income stream over many years.
- Overlap in the top five sectors and top 10 stocks.
Although they have commonalities, the variation between DGRO vs. VYM will help to determine the best ETF to add to your portfolio.
Differences: DGRO vs. VYM
Picking between DGRO or VYM is a tough choice. Although they are similar in some ways, the funds are more different than not. These variations may assist in deciding between the two. Some apparent differences would be:
- The expense ratio of DGRO is 0.08%, and VYM is 0.06%.
- DGRO has 428 holdings. VYM has 462 holdings.
- DGRO has $22.91 billion in assets. VYM has $61.7 billion in assets.
- DGRO has a yield of 2.51%, and VYM has a yield of 3.20%.
- Different benchmark indexes and goals.
Even though both funds are dividend ETFs, they have differences because their strategies, benchmarks, and popularity differ. The VYM ETF is a higher yielding, lower cost, and has more assets. But, DGRO has a dividend growth strategy, while VYM is more income-oriented.
| Ticker | DGRO | VYM |
|---|---|---|
| Name | iShares Core Dividend Growth ETF | Vanguard High Dividend Yield ETF |
| Index | Morningstar US Dividend Growth Index | FTSE High Dividend Yield Index |
| Number of Stocks | 428 | 462 |
| Expense Ratio | 0.08% | 0.06% |
| Price | $49.72 | $103.89 |
| 30-Day SEC Yield | 2.51% | 3.20% |
| P/E Ratio | 16.13X | 15.3X |
| Total Assets | $22.91B | $61.7B |
Dividend Strategy
The two ETFs follow different strategies. The DGRO ETF aims to invest in dividend growth stocks, while the VYM fund’s objective is to focus on equities with above-average dividend yields. Despite this difference, the DGRO and VYM overlap in their holdings.
The Dividend Yield
As mentioned before, these funds have different dividend yields. DGRO has a yield of 2.51%, and VYM has a yield of 3.20%. VYM owns a greater quantity of higher-yielding stocks accounting for the difference.
VYM is a high dividend yield ETF, paying a superior dividend for investors. Most income investors seek a higher yield, and VYM could be their choice. But those wanting dividend growth will prefer DGRO.
Portfolio Composition
The two ETFs invest in the same ten sectors and overlap in the top stocks. Additionally, both exclude the Real Estate sector. However, the weighting is different for the overall portfolio compositions. Because VYM aims to own above-average yielding stocks, it has greater weighting in Consumer Discretionary, Energy, Telecommunications, and Utilities. On the other hand, DGRO emphasizes the Healthcare and Information Technology sectors.
| Sector | DGRO | VYM |
|---|---|---|
| Basic Materials | 2.65% | 2.30% |
| Consumer Discretionary | 5.96% | 9.20% |
| Consumer Staples | 10.53% | 12.90% |
| Energy | 7.40% | 11.10% |
| Financials | 18.93% | 19.50% |
| Healthcare | 19.52% | 12.40% |
| Industrials | 11.29% | 12.40% |
| Real Estate | 0% | 0% |
| Information Technology | 15.22% | 7.70% |
| Telecommunications | 1.52% | 5.20% |
| Utilities | 6.63% | 7.30% |
The Performance
The performance of these two funds varies significantly. The DGRO ETF has a 5-year annualized total return of 11.13% and a cumulative total return of 69.47%. Since its inception in 2014, the annualized total return has been 10.89%, and the cumulative total return has been 155.07%
The VYM ETF had an annualized total return of 7.66% and a cumulative total return of 44.65% over that same five-year period. Its annualized total return was 7.94%, and its cumulative total return was 260.93% since its inception in 2006.
Comparing DGRO vs. VYM, if a person were to put $10,000 into either of these ETFs, they would have done better with DGRO.
DGRO vs. VYM: Dividend Growth or High Yield?
Many people will prefer DGRO over VYM because of the performance differences. The VYM fund’s 0.02% lower expense ratio is insufficient to overcome the better performance of DGRO. In addition, even though VYM is a high-yield ETF, the dividend yield is only roughly 0.7% more than that of DGRO. However, VYM is more diversified, with more stocks in the portfolio. It has also been tested through more recession and bear markets.
That said, choosing either ETF should be OK in the long run, depending on your objective.
Disclosure: None
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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.