Dividend Showdown: VIG vs SCHD – Which Top-Tier ETF Reigns Supreme?
Dividend ETF Comparison: Uncovering the Secret to Long-Term Success
The world of dividend stocks and exchange-traded funds (ETFs) can be complex, with numerous options available for investors seeking regular income. Two popular choices are the Vanguard Dividend Appreciation ETF (VIG) and the Schwab U.S. Dividend Equity ETF (SCHD). While both funds offer exposure to a basket of blue-chip dividend stocks, there’s more to their performance than meets the eye.
A Decade of Head-to-Head Performance
To compare these two funds, it’s essential to examine their historical performance over the past decade. A closer look at the data reveals some surprising insights into which ETF has produced better total returns for investors.
The Vanguard Dividend Appreciation ETF tracks the S&P U.S. Dividend Growers Index, while the Schwab U.S. Dividend Equity ETF follows the Dow Jones U.S. Dividend 100 Index. Both funds deal primarily in large-cap dividend stocks, and their individual companies’ weightings change over time.
Which ETF Has Grown Its Dividend More?
Surprisingly, investors have received better dividend growth from the Schwab U.S. Dividend Equity ETF over the past decade. With a yield of 4%, this fund has sharply increased its dividend, which might lead one to believe it would also outperform in total returns.
However, when examining the price appreciation and total investment returns for both funds, it’s clear that the Vanguard Dividend Appreciation ETF is the winner. It’s essential to dig deeper to understand why this disparity exists between these two seemingly similar ETFs.
A Shift in One of These ETFs’ DNA
The current top holdings for each ETF provide clues as to which one may perform better in the years ahead. Here are the top holdings for both funds, along with their recent dividend yields:
Vanguard Dividend Appreciation ETF (VIG)
- Broadcom: 4.20%
- Dividend Yield: 1%
- Microsoft: 4.12%
- Dividend Yield: 0.7%
- Apple: 3.77%
- Dividend Yield: 0.5%
- Eli Lilly: 3.72%
- Dividend Yield: 0.8%
- JPMorgan Chase: 3.62%
- Dividend Yield: 1.9%
- Visa: 2.98%
- Dividend Yield: 0.6%
- ExxonMobil: 2.44%
- Dividend Yield: 3.8%
- Mastercard: 2.36%
- Dividend Yield: 0.6%
- Costco Wholesale: 2.31%
- Dividend Yield: 0.5%
- Walmart: 2.22%
- Dividend Yield: 0.9%
Schwab U.S. Dividend Equity ETF (SCHD)
- Coca-Cola: 4.34%
- Dividend Yield: 2.7%
- Verizon Communications: 4.31%
- Dividend Yield: 6.2%
- Altria Group: 4.25%
- Dividend Yield: 6.7%
- Cisco Systems: 4.24%
- Dividend Yield: 2.5%
- Lockheed Martin: 4.20%
- Dividend Yield: 2.7%
- ConocoPhillips: 4.14%
- Dividend Yield: 3.6%
- Home Depot: 4.05%
- Dividend Yield: 2.5%
- Texas Instruments: 3.94%
- Dividend Yield: 3%
- Chevron: 3.84%
- Dividend Yield: 4.9%
- AbbVie: 3.69%
- Dividend Yield: 3.5%
The Vanguard Dividend Appreciation ETF’s current composition is clearly more growth-oriented, with companies like Broadcom, Microsoft, and Apple featuring strong earnings growth and low dividend yields. In contrast, the Schwab U.S. Dividend Equity ETF’s holdings have a lower growth baseline, which may impact its ability to sustain high dividend growth in the future.
Which ETF Is the Better Buy Right Now?
If maximizing immediate income is your primary goal, it’s hard to go wrong with the Schwab U.S. Dividend Equity ETF and its 4% yield. However, investors should anticipate another decade of such strong dividend growth from this fund.
On the other hand, for most investors who aren’t retirees, the Vanguard Dividend Appreciation ETF is the better buy today due to its growth-oriented composition and expected ability to generate better total returns over the long term.
Conclusion
When comparing the Vanguard Dividend Appreciation ETF (VIG) and the Schwab U.S. Dividend Equity ETF (SCHD), it’s essential to examine their historical performance, current holdings, and dividend yields. By doing so, investors can uncover the secret to long-term success in these two popular dividend stock ETFs.
Whether you prioritize immediate income or long-term growth, understanding the differences between these funds will help you make an informed decision for your portfolio.
