Higher Yield vs. Lower Cost: The Critical Differences Between HDV and VIG

Vanguard Dividend Appreciation ETF (NYSEMKT:VIG) focuses on companies with a history of increasing their payouts, while iShares Core High Dividend ETF (NYSEMKT:HDV) targets a concentrated group of high-yielding domestic equities.

Dividend-focused investors often choose between maximizing current income or betting on long-term capital growth through dividend appreciation. VIG tracks companies that have consistently increased dividends, while HDV selects stocks offering notably high yields today. This comparison examines how their different strategies affect cost, risk, and portfolio composition.

Snapshot (cost & size)

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

The Vanguard fund is the more affordable choice, with a 0.04% expense ratio, which is exactly half the iShares fund's cost. However, investors seeking higher current income may find the iShares fund more appealing, as it offers a trailing yield that is double its peer's distribution.

Performance & risk comparison

What's inside

Vanguard Dividend Appreciation ETF holds 333 positions and emphasizes growth-oriented sectors. Its largest holdings include Microsoft (NASDAQ:MSFT) at 4.90%, Apple (NASDAQ:AAPL) at 4.89%, and Broadcom (NASDAQ:AVGO) at 4.30%. The portfolio leans heavily toward Technology at 27%, Financial Services at 21%, and Healthcare at 19%. The fund was launched in 2006. Vanguard Dividend Appreciation ETF has paid $3.65 per share over the trailing 12 months, which, on its recent ~$248.24 share price, works out to a 1.5% yield.

iShares Core High Dividend ETF maintains a tighter portfolio of 74 holdings, focusing on stability and current income. Its largest positions include Exxonmobil (NYSE:XOM) at 9.61%, Chevron (NYSE:CVX) at 7.26%, and Abbvie (NYSE:ABBV) at 6.80%. This concentrated mix is heavy on Consumer Staples (27%) and Energy (25%), with Healthcare contributing 13%. The fund was launched in 2011. iShares Core High Dividend ETF has paid $0.96 per share over the trailing 12 months, which, on its recent ~$30.99 share price, works out to a 3.1% yield.

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Which looks like the better buy

When comparing the Vanguard Dividend Appreciation ETF (VIG) and the iShares Core High Dividend ETF (HDV), investors should consider several key factors. Let's see what they tell us about each fund.

First, we should examine each fund's strategy. VIG targets U.S. stocks with at least 10 years of growing annual dividend payments. HDV, on the other hand, targets top U.S. dividend-paying stocks based on yield. VIG also holds many more stocks, with around 330 names, while HDV holds about 75.

Two other important factors are historical performance and income potential. Since 2021, VIG has generated a total return of 60%, equating to a compound annual growth rate (CAGR) of 9.8%. HDV, meanwhile, has delivered an 83% total return, with a 12.9% CAGR. As for direct income potential, HDV delivers more. Its dividend yield of 3.1% is more than twice that of VIG's 1.5.%.

One final factor to weigh is cost. Here, both funds are quite affordable. VIG has the lower annual expense ratio, though, at 0.04%, while HDV's 0.08% is slightly higher.

In summary, VIG and HDV both hold dividend stocks, yet they differ in many key respects. HDV delivers higher absolute income and has also generated superior total returns in recent years. As such, many income-oriented investors will favor HDV. That said, VIG could still appeal to extremely cost-conscious investors, given its lower expense ratio.

Jake Lerch has positions in ExxonMobil. The Motley Fool has positions in and recommends AbbVie, Apple, Broadcom, Chevron, Microsoft, and Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.