Vanguard vs. Fidelity Dividend ETFs: Are a Higher Yield and Recent Returns Worth Higher Fees?

Many dividend-focused exchange-traded funds take one of two divergent paths: prioritizing current income or focusing on long-term growth potential. This comparison examines how Vanguard Dividend Appreciation ETF (NYSEMKT:VIG) and Fidelity High Dividend ETF (NYSEMKT:FDVV) approach these goals, offering distinct choices for investors weighing high immediate payouts against established dividend reliability, lower volatility, and institutional-scale cost efficiency.

Snapshot (cost & size)

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

The Vanguard fund remains one of the most cost-effective options in the category with its 0.04% expense ratio, which can significantly impact total returns over long holding periods. In contrast, the Fidelity fund charges 0.15% but compensates income-oriented investors with a substantially higher trailing-12-month distribution, maintaining a yield gap of 1.29% over the Vanguard offering.

Performance & risk comparison

What's inside

The Vanguard Dividend Appreciation ETF owns companies that have increased dividends for at least 10 consecutive years. Its portfolio includes 332 holdings, emphasizing resilience over high yield. Its largest positions include Broadcom at 5.2%, Apple at 4.07%, and Microsoft at 3.95%. Launched in 2006, the fund has a trailing-12-month dividend of $3.45 per share. Its sector exposure is balanced across technology at 25%, financial services at 21%, and healthcare at 16.5%.

The Fidelity High Dividend ETF employs a more concentrated approach with 112 holdings, targeting stocks that offer higher yields than the broader market. Its largest positions include Nvidia at 6.84%, Apple at 5.7%, and Microsoft at 4.5%. Launched in 2016, the fund has a trailing-12-month dividend of $1.66 per share. It carries a heavy weight in technology at 27%, with additional allocations to financial services at 18.9% and consumer cyclical companies at 14.5%.

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What this means for investors

While Vanguard Dividend Appreciation ETF offers a significantly lower expense ratio, Fidelity High Dividend ETF has recently delivered a higher dividend yield and stronger one-year total returns. That’s likely due to its smaller concentration and focus on stocks that offer higher yields than the broader market, versus VIG’s focus on stocks with long streaks of dividend increases. It’s also worth noting that FDVV excludes the stocks with the highest payout ratios, shielding investors from potential yield traps or companies whose dividends are unsustainable.

The two funds’ top three holdings have some obvious overlap, and both are heavily concentrated (about 45% to 46%) in the technology and financials sectors, which should enable both capital appreciation and dividend growth.

Both dividend-paying ETFs would be at home as core holdings in an income investor’s portfolio, allowing you to benefit from share price growth and dividend increases while either reinvesting the extra income or using it to cover other expenses. Choosing FDVV over VIG would mean prioritizing higher recent returns and overall yield over lower fees and a larger portfolio in terms of both total stocks and assets under management.

Sarah Sidlow has positions in Apple, Microsoft, and Nvidia. The Motley Fool has positions in and recommends Apple, Broadcom, Microsoft, Nvidia, and Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.