Should You Forget Growth ETFs and Invest in Dividend ETFs Instead?
Key Points
Dividend-paying ETFs can be less volatile in a market pullback.
Some dividend ETFs offer a nice mix of income and growth.
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Should you invest in growth exchange-traded funds (ETFs) or dividend-focused ETFs? It's a great question, and there are some solid reasons to choose either one.
You'll see a dozen popular ETFs, including some of each kind, below. I've ranked them by dividend yield. Note how dividend yields and performances are roughly inversely related. The higher-yielding ETFs generally have grown more slowly, while the fastest-growing ETFs offer little in yield.
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|
ETF |
Recent Yield |
Five-Year Avg. Annual Return |
10-Year Avg. Annual Return |
15-Year Avg. Annual Return |
|---|---|---|---|---|
|
iShares Preferred & Income Securities ETF (PFF) |
5.60% |
0.80% |
2.92% |
4.18% |
|
Schwab International Dividend Equity ETF (SCHY) |
3.50% |
14.31% |
8.85% |
N/A |
|
Schwab U.S. Dividend Equity ETF (SCHD) |
3.30% |
9.33% |
12.36% |
N/A |
|
Fidelity High Dividend ETF (FDVV) |
2.87% |
14.26% |
N/A |
N/A |
|
Vanguard Total International Stock ETF (VXUS) |
2.60% |
8.68% |
9.33% |
6.59% |
|
Vanguard High Dividend Yield ETF (VYM) |
2.30% |
12.21% |
11.38% |
12.16% |
|
Vanguard Dividend Appreciation ETF (VIG) |
1.51% |
10.51% |
12.76% |
12.23% |
|
Vanguard S&P 500 ETF (VOO) |
1.1% |
13.07% |
14.98% |
14.23% |
|
Vanguard S&P 500 Growth ETF (VOOG) |
0.45% |
13.50% |
17.27% |
15.94% |
|
Vanguard Growth ETF (VUG) |
0.39% |
12.58% |
17.40% |
15.81% |
|
Vanguard Information Technology ETF (VGT) |
0.36% |
18.32% |
24.17% |
20.43% |
|
VanEck Semiconductor ETF (SMH) |
0.17% |
35.76% |
34.75% |
27.85% |
Data source: Morningstar.com, as of July 20, 2026.
Why invest in dividend-focused ETFs?
Obviously, the best reason to invest in dividend-focused ETFs is for the income. And you don't even have to give up on growth with dividend payers. Yes, some ETFs like the preferred-stock one above will not grow much, but they'll deliver considerable income.
But some of these dividend ETFs show that you can get respectable income and respectable growth at the same time. The Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) and its international counterpart, the Schwab International Dividend Equity ETF (NYSEMKT: SCHY), are fine examples, as is the Fidelity High Dividend ETF (NYSEMKT: FDVV).
Another reason to consider dividend ETFs is if you're worried about a looming stock market crash. When the market crashes, it's often overvalued growth stocks that fall hardest. Companies that have committed to paying dividends tend not to grow as briskly and are less volatile, with sufficiently dependable income to support a regular payout.
Why invest in growth ETFs?
Growth ETFs are for those who want to see their investment increase in value as quickly as possible. That's never guaranteed, but these funds are loaded with relatively fast growers, and investing in them lets you participate in their growth.
These funds will likely fall harder in a market pullback, but for long-term investors who can wait out a pullback and even a possible recession, that can be acceptable. Remember, too, that occasional pullbacks simply do happen every few years.
And if you're drooling at some of the returns above, remember that they won't necessarily remain that high. The stock market has been extra frothy in recent years, far exceeding its long-term average annual growth rate of around 10%.
What to do
So -- dividend ETFs or growth ETFs? The reasoning varies by person. Risk-tolerant investors may lean toward growth ETFs, while risk-averse investors may opt for dividend-focused ETFs. Remember that if you're on the fence, you might simply want to do both.
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Selena Maranjian has positions in Schwab U.S. Dividend Equity ETF and Vanguard Growth ETF. The Motley Fool has positions in and recommends Vanguard Dividend Appreciation ETF, Vanguard Growth ETF, Vanguard High Dividend Yield ETF, and Vanguard S&P 500 ETF. The Motley Fool has a disclosure policy.
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