Looking for a Dividend ETF to Buy? Choose Between This High Yield and High Dividend Growth ETF

Investors choosing between Fidelity High Dividend ETF (NYSEMKT:FDVV) and Vanguard Dividend Appreciation ETF (NYSEMKT:VIG) must weigh the Fidelity fund's higher yield against the Vanguard fund's lower costs and broader diversification.

Both funds target dividend-paying equities but follow different philosophies. While Fidelity High Dividend ETF seeks high immediate income through sector overweighting, Vanguard Dividend Appreciation ETF focuses on companies with a history of increasing dividends. This distinction creates meaningful differences in sector exposure, total return potential, and portfolio concentration for income-seeking investors.

Snapshot (cost & size)

Cost-conscious investors may prefer the Vanguard fund, which features a lean 0.04% expense ratio. However, the Fidelity fund offers a more robust income profile, with a 2.80% trailing-12-month distribution yield.

Performance & risk comparison

The Vanguard Dividend Appreciation ETF uses a passive approach to track dividend growers, essentially replicating the S&P U.S. Dividend Growers Index (NYSEMKT:SPUDIGUT). Its sector exposure as of May 31 includes technology at 28.4%, financial services at 20.3%, and healthcare at 16.5%. With 331 holdings, its largest positions include Broadcom (NASDAQ:AVGO) at 5.41%, Apple (NASDAQ:AAPL) at 4.57%, and Microsoft (NASDAQ:MSFT) at 4.27%. The fund was launched in 2006 and had a trailing-12-month dividend of $3.45 per share.

The Fidelity High Dividend ETF employs a strategy that overweights sectors to maximize yield based on historical performance. Its portfolio is more concentrated, holding 111 stocks. The primary sector tilts are technology at 30%, financial services at 17%, and consumer cyclical at 14%. Its largest positions include Nvidia (NASDAQ:NVDA) at 7.03%, Apple at 6.35%, and Microsoft at 4.82%. This fund was launched in 2016 and had a trailing-12-month dividend of $1.66 per share.

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What this means for investors

The Fidelity High Dividend ETF and the Vanguard Dividend Appreciation ETF are among the top ETFS for income investors, but while one focuses on yield, the other places greater emphasis on dividend growth. That can make a considerable difference to shareholder returns.

The Fidelity fund’s primary focus is on high yield paire with dividend growth. It evaluates large- and mid-cap companies that are expected not only to pay but also to grow dividends, and ranks them within each sector based on a composite score comprising high dividend yield, low dividend payout ratio, and high dividend growth. The top tanking stocks are included in the index.

The Vanguard fund also focuses on dividend-growth companies and includes companies that have increased dividends for at least ten consecutive years. Yield, however, is not the focus. In fact, the S&P U.S. Dividend Growers Index that the fund tracks explicitly excludes the 25% highest-yielding companies. That’s possibly to filter out potential yield traps or stocks with unsustainably high yields due to falling prices. Not all high-yielding stocks are safe.

While investors can choose any ETF, I’d personally opt for the Vanguard Dividend Appreciation ETF, as it not only offers dividend growth but also safeguards against risky dividend payers. It is also an extremely low-cost ETF, charging only $4 annually for $10,000 invested.

Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Broadcom, Microsoft, Nvidia, and Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.