If You're Looking for a Dividend Fund, Which Vanguard ETF Is the Better Buy, VYM or VIG?

Vanguard Dividend Appreciation ETF (NYSEMKT:VIG) targets companies with long records of growing dividends, while Vanguard High Dividend Yield ETF (NYSEMKT:VYM) focuses on stocks with higher current yields and a value tilt.

Both funds are staples in income-oriented portfolios, but they utilize different selection criteria to achieve their goals. The appreciation fund requires a 10-year track record of dividend increases, while the high-yield fund captures the highest-yielding portion of the market, resulting in distinct performance outcomes and risk profiles for long-term investors.

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 as of the close of June 30.

Investors pay just 0.04% for either fund, making them equally efficient for long-term holders. However, the high-yield fund offers a significantly higher yield of 2.30%, which appears more attractive than the 1.90% yield of the appreciation-focused strategy.

Performance & risk comparison

What's inside

The Vanguard Dividend Appreciation ETF tracks the S&P U.S. Dividend Growers Index, which selects companies that have increased their annual dividend payments for at least 10 consecutive years. This disciplined focus on consistency results in a portfolio of 331 holdings that leans into growth-oriented sectors, including Technology at 29%, Financial Services at 19.9%, and Healthcare at 16.6%. Its largest positions include Broadcom (NASDAQ:AVGO) at 5.39%, Apple (NASDAQ:AAPL) at 4.56%, and Microsoft (NASDAQ:MSFT) at 4.26%. The fund was launched in 2006. Vanguard Dividend Appreciation ETF has paid $3.58 per share over the trailing 12 months, which, on its recent $236.62 share price, works out to a 1.90% yield.

In contrast, the Vanguard High Dividend Yield ETF seeks to mirror the FTSE High Dividend Yield Index by holding 605 stocks with higher-than-average yields. While it overlaps with some funds, the Vanguard fund provides broader diversification across value-oriented industries and allocates 20.3% to Technology, 20% to Financial Services, and 12.2% to Healthcare. Its top holdings include Broadcom at 8.49%, JPMorgan Chase & Co (NYSE:JPM) at 3.13%, and Exxon Mobil (NYSE:XOM) at 2.52%. This fund was also launched in 2006. Vanguard High Dividend Yield ETF has paid $3.63 per share over the trailing 12 months, which, on its recent $158.03 share price, works out to a 2.30% yield.

Which fund is the better buy?

As both are Vanguard funds, there are many similarities, including the low expense ratio typical of Vanguard funds. There are some differences to take into account, however.

The Vanguard Dividend Appreciation ETF, VIG, is classified in the large-cap blend style box, indicating a mix of value and growth stocks. The average market cap of its holdings, $329 billion, is nearly twice that of its sibling and reflects the growth stocks in its portfolio trading at a premium. It’s almost all U.S. stocks, with nearly 1% of holdings in foreign-listed stocks.

By comparison, the Vanguard High Dividend Yield ETF, VYM, has more holdings with an average market cap of about $173 billion, reflecting the fund’s large-cap value style. Its holdings also have lower price-to-sales and price-to-book ratios than its brethren. It’s all in U.S. equities.

Performance-wise, VYM is beating VIG in every time frame except for the 10-year. VYM has returned 17.4%, 11.8%, and 11.6% in the 3-year, 5-year, and 10-year look-backs. VIG has returned 15.4%, 10.9%, and 13.1% annualized, respectively.

Which is the better fund? If your goal is to find better income and performance, the Vanguard High Dividend Yield ETF, VYM, is the pick, besting its Vanguard sibling for both income generation and performance over most time frames.

For more guidance on ETF investing, check out the full guide at this link.

JPMorgan Chase is an advertising partner of Motley Fool Money. Brendan Coffey has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, Broadcom, JPMorgan Chase, Microsoft, Vanguard Dividend Appreciation ETF, and Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.