Vanguard's VYM Offers Broader Diversification Than iShares, But HDV Shines With Its Higher Yield

The Vanguard High Dividend Yield ETF (NYSEMKT:VYM) offers broader diversification and stronger recent returns, while the iShares Core High Dividend ETF (NYSEMKT:HDV) focuses on a higher payout and a more concentrated portfolio.

Both ETFs aim to provide stable income through high-dividend U.S. stocks, but their strategies differ: VYM holds nearly 600 companies for wide diversification, while HDV concentrates on just 75 stocks. This comparison weighs cost, performance, risk, and sector exposure to help investors decide which may better fit an income-focused strategy.

Snapshot (cost & size)

Beta measures price volatility relative to the S&P 500. The 1-yr return represents total return over the trailing 12 months.

VYM is slightly more affordable on fees, with an expense ratio of 0.06% compared to HDV’s 0.08%. HDV pays a higher dividend yield, however, which can be a significant edge for income-focused investors.

Performance & risk comparison

What's inside

VYM contains 566 holdings and has a 19-year track record. The portfolio’s largest sector weights are financial services (21%), technology (14%), and industrials (13%). Its top holdings include Broadcom, JPMorgan Chase & Co, and Exxon Mobil, each accounting for a small portion of assets. This broad approach may appeal to investors seeking diversification and exposure to a wide range of U.S. dividend payers.

In contrast, HDV holds just 75 stocks and leans heavily on consumer staples, energy, and healthcare sectors. Its top positions are Exxon Mobil, Johnson & Johnson, and AbbVie, which together represent a more concentrated bet on established, high-yielding blue chips. HDV’s tighter focus could suit those who prefer a portfolio centered on traditional dividend leaders.

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Foolish take

VYM and HDV are both established dividend ETFs with a history of delivering higher payouts, making them smart options for income-focused investors. Where they differ, however, primarily comes down to diversification.

VYM holds far more stocks, with a portfolio that is more than seven times the size of HDV's. It also offers more diversification across sectors, without any significant tilt toward any one industry. For investors seeking exposure to a wide variety of dividend stocks from all corners of the market, VYM could fit the bill.

HDV, on the other hand, offers a more targeted approach to a much smaller selection of stocks with a history of paying higher dividends. Less diversification can sometimes increase risk, but it also has greater potential for above-average earnings if all of the stocks in the fund are heavy hitters.

Between the two funds, HDV boasts the higher dividend yield at 3.09% compared to VYM's 2.49%. However, with its higher expense ratio, fees will eat into some of those earnings. HDV has also slightly underperformed VYM with lower one- and five-year total returns, which is another factor to consider.

If a higher dividend payout is your main priority, HDV has the edge. But if you're looking for increased diversification and exposure to more stocks, VYM could be a good choice.

Glossary

ETF: Exchange-traded fund; a basket of securities traded on an exchange like a stock.
Diversification: Spreading investments across various assets to reduce risk.
Expense ratio: Annual fee, as a percentage of assets, that a fund charges to cover operating costs.
Dividend yield: Annual dividends paid by an investment, expressed as a percentage of its price.
Total return: The investment's price change plus all dividends and distributions, assuming those payouts are reinvested.
Beta: A measure of an investment's volatility compared to the overall market, typically the S&P 500.
AUM: Assets under management; the total market value of assets a fund manages.
Max drawdown: The largest observed loss from a fund's peak value to its lowest point over a period.
Sector weights: The proportion of a fund's assets allocated to different industry sectors.
Blue chips: Large, established companies with a history of reliable performance and dividends.

JPMorgan Chase is an advertising partner of Motley Fool Money. Katie Brockman has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, JPMorgan Chase, and Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF. The Motley Fool recommends Broadcom and Johnson & Johnson. The Motley Fool has a disclosure policy.