Dividend ETFs: HDV Offers Higher Yield Than VIG

The comparison between iShares Core High Dividend ETF (NYSEMKT:HDV) and Vanguard Dividend Appreciation ETF (NYSEMKT:VIG) reveals key differences in dividend yield, sector focus, and diversification that could appeal to distinct income and growth preferences.

Both HDV and VIG target U.S. stocks with a dividend emphasis, but their approaches diverge: HDV concentrates on higher-yielding companies, while VIG seeks firms with a consistent record of growing dividends. This analysis explores how their costs, performance, risk, and portfolio makeup stack up for investors weighing income versus growth potential.

Snapshot (Cost & Size)

Beta measures price volatility relative to the S&P 500; beta is calculated from five-year weekly returns. The 1-yr return represents total return over the trailing 12 months.

VIG is marginally less expensive to own, with an expense ratio of 0.05% compared to HDV’s 0.08%, and it offers significantly greater scale with assets under management of about 10 times that of HDV. However, HDV pays a much higher dividend yield, which could appeal to those prioritizing income.

Performance & Risk Comparison

What's Inside

VIG tracks large-cap U.S. companies that have consistently increased their dividends, resulting in a portfolio of 338 holdings with a notable tilt toward Technology (30%), Financial Services (21%), and Healthcare (15%). Its top holdings -- Broadcom (NASDAQ:AVGO), Microsoft (NASDAQ:MSFT), and Apple (NASDAQ:AAPL)-- reflect this sector slant. The fund’s nearly 20-year track record and broad diversification may appeal to those seeking steady growth from dividend growers.

HDV, in contrast, focuses more narrowly on 74 U.S. stocks with higher current yields, leading to greater weighting in Consumer Defensive, Energy, and Healthcare sectors. Its largest positions -- Exxon Mobil (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), and Chevron (NYSE:CVX)-- underscore this defensive, income-oriented approach. Compared to VIG, HDV’s sector mix and concentrated portfolio may appeal to those prioritizing yield and lower volatility.

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What This Means For Investors

While there are plenty of common attributes between VIG and HDV, there are also some key differences. Here's a quick breakdown of what they are.

First off, let's take a closer look at VIG. This fund is focused on stocks that consistently grow their dividends, a.k.a. dividend appreciation. Therefore, it holds many stocks in high-growth industries like technology. That results in a trade off -- tech companies tend to sport lower dividend yields. As a result, VIG itself has a lower dividend yield than HDV (2.0% vs. 3.2%). Yet, it has made up for its lower dividend yield with a higher rate of return. VIG has generated a five-year compound annual growth rate (CAGR) of 11.7% as opposed to 11.0% for HDV. Finally, VIG's lower expense ratio (0.05% vs. 0.08%) means that investors pay less in fees.

Turning to HDV, there are a few ways in which it edges out VIG. Firstly, HDV's higher dividend yield of 3.2% is important, particularly for income-oriented investors. Second, HDV's focus on higher-yielding stocks results in a portfolio more highly concentrated on defensive sectors like energy, consumer staples, and healthcare. Consequently, HDV has seen lower drawdowns during corrections or bear markets. That's important, because for investors focused on value and income, lower risk makes it easier to sleep at night.

In summary, VIG and HDV both offer their own compelling investment thesis. VIG is better suited to investors willing to take on some additional risk in exchange for potentially higher returns, while HDV is better suited to conservative investors seeking to preserve capital and generate higher levels of income.

Glossary

ETF: Exchange-traded fund that holds a basket of securities and trades on an exchange like a stock.
Dividend yield: Annual dividends per share divided by share price, showing income produced as a percentage of investment.
Dividend growth: Pattern of a company regularly increasing its dividend payments over time.
Expense ratio: Annual fund operating costs expressed as a percentage of the fund’s average assets.
Assets under management (AUM): Total market value of all assets managed within a fund or investment product.
Beta: Measure of an investment’s volatility compared with the overall market, typically the S&P 500 index.
Max drawdown: Largest peak-to-trough decline in an investment’s value over a specific period.
Total return: Investment performance including price changes plus all dividends and distributions, assuming reinvestment.
Sector exposure: Portion of a fund’s assets invested in specific industries, such as Technology or Energy.
Diversification: Spreading investments across many securities or sectors to reduce the impact of any single holding.
Defensive sector: Industries like Consumer Defensive or Healthcare that tend to be less sensitive to economic cycles.
Portfolio concentration: Degree to which a fund’s assets are invested in a relatively small number of holdings.

Jake Lerch has positions in ExxonMobil. The Motley Fool has positions in and recommends Apple, Chevron, Microsoft, and Vanguard Dividend Appreciation ETF. The Motley Fool recommends Broadcom and Johnson & Johnson and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.