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 unique ETFs that track different indexes and create opportunities for many investors. Of course, not all investment funds are created equal, so Vanguard has two similar but different ETFs to choose. 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 yield.
It is time to delve 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 can 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 as 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, and some growth and stability companies that pay them out, like Microsoft (MSFT), 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 is 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), traditional or Roth 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. VIG and VYM are those two different ETFs.
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 338 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. The fund is also available in lower-cost Admiral shares. In addition, VIG has a dividend yield of 1.68%, giving you $168 for every $10,000 you have in the fund.
Owning only companies with a 10-plus-year track record makes this fund more stable and avoids 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 11.84% over the last ten years compared to its benchmark’s return.
The top 10 holdings of VIG:
| Ticker | Company | Weighting (%) |
|---|---|---|
| AAPL | Apple | 4.74% |
| AVGO | Broadcom | 4.24% |
| MSFT | Microsoft | 3.62% |
| JPM | JPMorgan & Chase | 3.40% |
| XOM | Exxon Mobil | 2.82% |
| UNH | UnitedHealth Group | 2.80% |
| V | Visa | 2.50% |
| MA | Mastercard | 2.23% |
| HD | Home Depot | 2.11% |
| PG | Procter & Gamble | 2.10% |
The top 10 holdings constitute about 30.56% of VIG. The median market cap is about $209,500 million.
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VYM Overview
VYM is structured a bit differently than VIG. 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 536 different stocks. It has an expense ratio of 0.06%, costing $6 per year for every $10,000 invested into the fund. The fund is also available in lower-cost Admiral shares. VYM’s dividend yield is 2.66%, giving you $266 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 10.17% over the last ten years compared to the benchmark.
The Top 10 Holdings of VYM:
| Ticker | Company | Weighting (%) |
|---|---|---|
| AVGO | Broadcom | 4.38% |
| JPM | JPMorgan Chase | 3.61% |
| XOM | Exxon Mobil | 2.97% |
| HD | Home Depot | 2.21% |
| PG | Procter & Gamble | 2.21% |
| JNJ | Johnson & Johnson | 2.19% |
| ABBV | AbbVie | 2.05% |
| WMT | Walmart | 2.02% |
| BAC | Bank of America | 1.61% |
| MRK | Merck | 1.47% |
The top 10 holdings constitute about 24.72% of VIG. The median market cap is about $142,200 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. However, there are specific 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.
| Ticker | VIG | VYM |
|---|---|---|
| Name | Vanguard Dividend Appreciation ETF | Vanguard High Dividend Yield ETF |
| Index | S&P Dividend Growers Index | FTSE High Dividend Yield Index |
| Number of Stocks | 338 | 536 |
| Expense Ratio | 0.06% | 0.06% |
| Price | $204.68 | $134.74 |
| 30-Day SEC Yield | 1.68% | 2.66% |
| P/E Ratio | 25.5X | 20.0X |
| Total Assets (Fund) | $100.5B | $72.7B |
The Portfolio Composition
VIG is more heavily concentrated in the Information Technology sector, with a concentration of 23.8% in the fund, and VYM only has about 9.8% of its portfolio dedicated to Technology. It shows that VIG concentrates more on growth stocks, like Apple, Broadcom, and Microsoft, that tend to grow their dividends.
On the other hand, VYM concentrates on sectors like Healthcare, Energy, Financials, Telecommunications, and Utilities. Some top companies in the fund are AbbVie, Merck, Walmart, and Bank of America. These companies provide much higher dividends but are less growth-oriented than technology companies.
| Sector | VIG | VYM |
|---|---|---|
| Basic Materials | 3.90% | 2.00% |
| Consumer Discretionary | 6.20% | 10.10% |
| Consumer Staples | 11.50% | 10.80% |
| Energy | 3.20% | 9.60% |
| Financials | 20.80% | 21.80% |
| Healthcare | 15.20% | 11.70% |
| Industrials | 12.10% | 12.70% |
| Real Estate | 0.00% | 0.00% |
| Technology | 23.80% | 9.80% |
| Telecommunications | 1.00% | 4.30% |
| Utility | 2.30% | 7.20% |
The Performance of the Funds
When people are looking for dividends, they are not actively looking at a fund’s overall performance, 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 11.84% over the last ten years. It has increased 12.90% per annum for five years, 10.22% on average over the last three years, and 26.72% over the previous year.
However, VYM has returned 10.17% over the last ten years, 11.044% in the previous five years, 11.75% over the last three years, and 30.11% 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 1.68%, and VYM has a yield of 2.66%. VYM has more higher-yielding stocks.
VYM is the high dividend yield ETF, paying a much higher dividend for investors. Most dividend investors seek 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 Vanguard ETFs 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.