VYM and SCHD Stocks Compare Dividend Yield and Growth for Income Investors

For several years now, it has been difficult to find strong yields in fixed income stocks. As bond yields hit their cyclical peaks in late 2023 and early 2024, annual percentage yields (APYs) on other financial instruments such as certificates of deposit (CDs) and high-yield savings accounts have generally declined, as bond yields remain volatile.

And while the Federal Reserve’s July FOMC meeting is still a few weeks away, cash-strapped investors hoping that rising inflation will be enough to spur the central bank to raise rates shouldn’t hold their breath. According to CME Group’s FedWatch Tool, the probability that the Fed will keep the benchmark interest rate in the range of 350–375 basis points is more than 73%.

Fortunately, the equity market has no shortage of yield-focused exchange-traded funds (ETFs) that can help fill the gap. But understanding how the two dividend ETFs work is important to ensure you keep the right one in your portfolio.

You should Prioritize Broad Exposure of Yield or Quality of Profit?

When it comes to deciding between the Vanguard High Dividend Yield ETF NYSEARCA: VYM and the Schwab US Dividend Equity ETF NYSEARCA: SCHDthere is no right or wrong answer.

While income investors work together to achieve yield, they are not a monolith. Retirees looking to supplement their income with Social Security benefits may choose a higher payout, prioritizing stable portfolio income and broad diversification. On the other hand, small investors may focus more on total return, compounding, and dividend growth discipline.

That difference is one of the main differences between VYM and SCHD. While both offer lower expenses, large-cap exposure—the former has an average expense ratio of just 0.04%, while the latter is 0.06%—have very different approaches that serve very different portfolio needs.

Vanguard’s cash-focused ETF tracks the FTSE High Dividend Yield Index while seeking to provide exposure to US companies predicted to pay above-average dividends, giving investors a one-stop shop for diversified access to income-generating stocks. Schwab’s counterparty has very selective criteria, resulting in a very small portfolio focused on equity farmers.

But the difference doesn’t end there.

VYM: High Payouts, Slow Growth

The Vanguard High Dividend Yield ETF invests large amounts in large-cap US stocks in a variety of sectors, with shares selected for their dividend characteristics rather than stock selection.

The top five sectors represented in the fund’s portfolio are technology and financials (20% each), healthcare (12%), industrials (11%), and energy (9%).

Similarly, the fund’s top holdings include Broadcom NASDAQ: AVGOJPMorgan Chase NYSE: JPMExxonMobil NYSE: XOMand Johnson & Johnson NYSE: JNJ. In total, the ETF portfolio is made up of more than 600 companies, with its top 25 holdings accounting for 43% of its total weight.

It paid a dividend of $2.26 per share last time and an annual yield of 3.63%.

It accomplishes that by targeting US companies—other than REITs—whose stocks are predicted to pay above-average yields, and weight them heavily by market capitalization.

That makes this ETF better suited for investors looking for broad, low-cost equity exposure and a narrow single-stock concentration, rather than investors simply trying to maximize current yield.

SCHD: Low Fees, High Growth

The Schwab US Dividend Equity ETF has stricter selection criteria than the Vanguard dividend fund.

Tracking the Dow Jones US Dividend 100 Index, SCHD’s test requirements include 10 consecutive years of dividend payments, and filters cash flow to debt, dividend yield, implied yield, and five-year earnings growth rate.

As a result, its highly selected portfolio consists of nearly 100 stocks with a high dividend yield of nearly 42%. While VYM’s top 25 holdings account for about 78% of its total portfolio, SCHD is heavily concentrated, too. The fund’s top 10 holdings account for about 42% of its total portfolio.

Those strict coverage rules result in heavy weightings in health care (21%), consumer staples (20.5%), and financials (10%)—three sectors historically popular with equity investors. The fund also has exposure to energy (14%).

Notably, with a focus on dividend growth, the ETF basket is very light on technology exposure (14%). Texas Instruments NASDAQ: TXN it is the only technology stock on the fund’s top 10 list.

Instead, shareholders get huge payouts from the Dividend Kings, including Coca-Cola NYSE: KOProcter & Gamble NYSE: PGPepsiCo NASDAQ: PEPand Altria Group NYSE: MOand a handful of Dividend Champions (companies that have increased their dividends for at least 25 consecutive years).

SCHD shares yield 3.23% on a trailing 12-month basis—more than 100 basis points higher than VYM. At current prices, that profit equates to a quarterly dividend of about 28 cents per share. But for long-term income investors, SCHD can serve as a long-term wealth builder that prioritizes compound growth and dividend diversification, strong investment filters, and outperformance.

Before considering the Schwab US Dividend Equity ETF, you’ll want to hear this.

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