VIG vs. VYM: What is the Best Vanguard ETF?

Last Updated on August 12, 2023 by Prakash Kolli

Two of the best dividend exchange-traded funds (ETFs) happen to be made by Vanguard. These two ETFs provide growth, stability, and great dividends. Vanguard Dividend Appreciation ETF (VIG) and Vanguard High Dividend Yield ETF (VYM) are two unique ETFs tracking different indexes creating opportunities for other types of investors. Of course, not all investment funds are created equal, which is the reason Vanguard has two similar but different ETFs to choose from. But in the battle between VIG vs. VYM, which Vanguard Dividend ETF would you choose?

VIG and VYM are two of the most popular ETFs on the market, with tens of billions of dollars in assets under management (AUM). They provide diversification combined with a low expense ratio making them popular for portfolios. However, the two funds differ in the number of stocks they own, performance, underlying index, and their yield.

It is time to dvelve deeper into these two ETFs and see which is the better dividend ETF in a head-to-head comparison of VIG vs. VYM.


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What is a Dividend ETF?

Before we compare VIG vs. VYM, let’s define a dividend and dividend ETF. A dividend is a share of some of the profits paid to the shareholder. As companies make more profit, they have opportunities to either invest it back into the company, pay down debt, repurchase more shares to increase the share’s price, or give it out to the stock owners in the form of a dividend. 

A dividend ETF is an exchange-traded fund with a collection of different companies that pay dividends. These companies could consist of Dividend Aristocrats, continuously increasing dividends for 25 years, some growth and stability companies that pay them out like Microsoft (MSFT) or Coca-Cola (KO), or high-yield companies.

As people grow their investment portfolios, they see the income that can come with owning a good dividend ETF. The payment seems a bit larger than the income or dividends that may be paid from an S&P 500 ETF or even a technology index tracked ETF. 

Many investors use dividends to supplement their retirement income from a 401(k), Individual Retirement Account (IRA), or pension. As a result, they are often on the lookout for a good dividend stock, but the nice thing with an ETF is that you are not putting all your eggs into one stock. Instead, an ETF is a diversified basket of many dividend-paying stocks.

Vanguard created two ETFs that can help bring dividends to your portfolio generating a passive income stream. Those two different ETFs are VIG and VYM.

VIG vs. VYM: What is the Best Vanguard ETF?

Overview of VIG

VIG is a dividend growth ETF that tracks the S&P Dividend Growers Index, which consists of approximately 289 different stocks. The ETF focuses on companies consistently growing their dividends over ten years. It has an expense ratio of 0.06%, costing $6 per year for every $10,000 invested into the fund. In addition, VIG has a dividend yield of 1.81%, giving you $181 for every $10,000 you have in the fund. 

Owning only companies with a 10-plus-year track record allows this fund to be more stable and avoid volatility. The companies are growing and therefore are not staying stagnant. 

The fund continues to perform well over time because of the growth, having an average annualized return of approximately 11.89% over the last ten years compared to its benchmark’s return of ~11.97%.

The top 10 holdings of VIG:

TickerCompanyWeighting (%)
UNHUnitedHealth Group4.16%
JNJJohnson & Johnson3.76%
JPMJPMorgan & Chase2.77%
PGProcter & Gamble2.75%
HDHome Depot2.57%
Source: Vanguard Website (as of July 31, 2022)

The top 10 holdings constitute about 29.26% of VIG. The median market cap is about $157,500 million.

VYM Overview

VYM is structured a bit differently than VIG. The VYM tracks the FTSE High Dividend Yield Index. The purpose is to create a fund comprised of high dividend yield companies. Each company has a history of paying above-average dividends to its shareholders. The fund is composed of 443 different stocks. It has an expense ratio of 0.06%, costing $6 per year for every $10,000 invested into the fund. VYM’s dividend yield is 3.02%, giving you $302 for every $10,000 invested into the fund. 

VYM also differs in structure while holding more durable goods in their composition, such as Financials, Consumer Staples and Discretionary, and Healthcare. This is because these sectors are not growing as fast as Technology and other industries but pay higher dividends. 

VYM had an average return of 11.11% over the last ten years compared to roughly 11.97% for the benchmark.

The Top 10 Holdings of VYM:

TickerCompanyWeighting (%)
JNJJohnson & Johnson3.27%
XOMExxon Mobil2.91%
JPMJPMorgan Chase2.40%
PGProcter & Gamble2.37%
HDHome Depot2.22%
LLYEli Lilly1.98%
Source: Vanguard Website (as of July 31, 2022)

The top 10 holdings constitute about 23.07% of VYM. The median market cap is about $132,400 million.

Similarities: VIG vs. VYM

These are two great dividends ETFs. They are similar in cost, each with an expense ratio of 0.06%, leading to low costs. But there are certain differences to consider if you choose one over the other.

Differences: VIG vs. VYM

Unlike SCHD and VYM, these two ETFs have more differences than similarities because their benchmark indexes and goals differ.

NameVanguard Dividend Appreciation ETFVanguard High Dividend Yield ETF
IndexS&P Dividend Growers IndexFTSE High Dividend Yield Index
Number of Stocks289443
Expense Ratio0.06%0.06%
30-Day SEC Yield1.89%3.02%
P/E Ratio21.0X14.4X
Total Assets$75.9B$58.6B

The Portfolio Composition

VIG is more heavily concentrated in the Information Technology sector, with a concentration of 24% in the fund, and VYM only has about 6.7% of its portfolio dedicated to Technology. It shows that VIG concentrates more on growth stocks that tend to grow their dividends, like Microsoft, Visa (V), and Mastercard (MA).

On the other hand, VYM concentrates on sectors like Healthcare, Energy, Financials, Telecommunications, and Utilities. Some top companies in the fund are Johnson & Johnson, JP Morgan, and Exxon Mobil. These companies provide much higher dividends but are not as growth oriented as technology companies.

Basic Materials4.70%3.90%
Consumer Discretionary9.20%8.70%
Consumer Staples13.30%12.90%
Real Estate0.00%0.00%
Source: Vanguard Website (as of July 31, 2022)

The Performance of the Funds

When people are looking for dividends, they are not actively looking at the overall performance of a fund, but that is necessary to show the growth of individual stocks and allow the passive income to be a nice bonus.

VIG is a much better performing ETF than VYM mainly because of its concentration in higher growth industries such as Technology. 

VIG has grown annually at a rate of 11.89% over the last ten years. It has increased 11.78% per annum for five years, 9.66% on average over the last three years, and has lost (-7.23%) over the previous year. 

However, VYM has returned 11.11% over the last ten years, 8.92% in the previous five years, 9.83% over the last three years, and (-0.59%) in the trailing 1-year. 

These show you two different pictures. In the long term, VIG is outperforming VYM in total returns. If you seek an ETF with greater returns, then VIG is the ETF for you. 

The Dividend Yield

As mentioned before, these have different dividend yields. VIG has a yield of 1.89%, and VYM has a yield of 3.02%. VYM has more higher-yielding stocks.

VYM is the high dividend yield ETF, paying a much higher dividend for investors. Most dividend investors look for a higher yield, and VYM could be their choice. 


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VIG vs. VYM: What is the Best Vanguard ETF?

These two ETFs are similar in tracking indexes of different dividend-paying stocks. If you want a fund that produces higher returns with growing dividends, then VIG would be your best fund. In fact, VIG makes our list of best dividend growth ETFs for this reason. However, if dividend yields are what is wanted most of all, then you cannot go wrong with VYM. 

Each dividend ETF has its positives and negatives, and depending on how you structure your portfolio depends on which one would be right for you. The best part is that they are both with Vanguard and have a low expense ratio of 0.06%. 

Disclosure: None

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Steve Cummings is the founder of the personal finance blog The Frugal Expat. As a traveler and expat, he has learned a lot about how to save money, live frugally, and invest for the future. His mission is to help people in saving, investing, reaching financial independence, and traveling.

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