VIG vs VYM: What is the Best Vanguard Dividend ETF?

Steve Cummings

VIG vs VYM: Which Dividend ETF Would You choose?

Two of the best dividend ETFs are made by Vanguard. These two ETFs provide growth, stability, and great dividends. VIG and VYM are unique ETFs tracking different indexes, creating opportunities for other investors. Not all investments are created equal, so Vanguard has two similar but different ETFs to choose from. 

Which Vanguard Dividend ETF would you choose? Let's take a look at VIG vs VYM.

What is a Dividend ETF?

A dividend is a share of some of the profits paid to the shareholder. As companies make more profit, they can either invest it back into the company, repurchase more shares to increase the share's price, or give it out to the shareholders in the form of a dividend. 

A dividend ETF is an exchange-traded fund with various companies that pay dividends. These companies could consist of Dividend Aristocrats (companies increasing dividends continuously for 25 years) or some growth and stability companies that pay them out, like Microsoft (MSFT) or Coca-Cola (KO).

As people grow their investment portfolios, they see the income that can come with owning a good dividend ETF. The payment is larger than the income or dividends that may be paid from an S&P 500 ETF or a technology index-tracked ETF. 

Many of these investors use dividends to supplement their retirement income. They are often on the lookout for a good dividend stock, but the good thing with the ETF is that you are not putting all your eggs into one stock. The ETF is a collection of many of these dividend-producing stocks.

Vanguard created two ETFs that can help bring dividends to your portfolio. VIG and VYM are those two different ETFs. 

VIG (Vanguard Dividend Appreciation ETF) Overview:

VIG is a dividend growth ETF that tracks the S&P Dividend Growers Index, which is made up of 289 different stocks. The ETF focuses on companies consistently growing their dividends over ten years. 

It has an expense ratio of 0.06%, costing $6 per year for every $10,000 invested into the fund.

Having only companies with a 10-plus year track record makes this fund more stable and avoids volatility. The companies are growing and, therefore, are staying active. The fund continues to perform well over time because of the growth, having an average return of 11.00% over the last ten years. It has a dividend yield of 1.81%, giving you $181 for every $10,000 you have in the fund. 

The top 10 holdings of VIG:

  1. UnitedHealth Group Inc.
  2. Microsoft
  3. Johnson & Johnson
  4. JP Morgan Chase & Co.
  5. Visa Inc. Class A
  6. Procter & Gamble Co.
  7. Home Depot Inc.
  8. Mastercard Inc. Class A
  9. Coca-Cola Inc.
  10. PepsiCo Inc.

VYM (Vanguard High Yield Dividend ETF) Overview:

VYM is structured differently than VIG. VYM tracks the FTSE High Dividend Yield Index. The purpose is to create a fund comprised of high-dividend-yield companies. Each company has a history of paying above-average dividends to its shareholders. The fund is comprised of 443 different stocks. 

VYM also differs in structure while holding more durable goods in their composition, such as Financials, Consumer Goods, and Healthcare. These sectors are growing less than Technology and other industries but pay higher dividends. 

VYM had an average return of 9.70% over the last ten years. Its dividend yield is 2.89%, giving you $289 for every $10,000 invested into the fund. 

The Top 10 Holdings of VYM:

  1. Johnson & Johnson
  2. Exxon Mobil
  3. JP Morgan Chase Co.
  4. Proctor & Gamble
  5. Chevron
  6. Home Depot
  7. Pfizer
  8. Eli Lily & Co.
  9. AbbVie Inc.
  10. Coca-Cola Co.

Related: SCHD vs VYM: Which is the Better Dividend ETF?

Similarities Between VIG vs VYM

VIG and VYM are dividend ETFS with low expense ratios to help your portfolio. They work on helping create dividend income for the investor by holding companies that match their parameters. The two ETFs are similar in that they are made by Vanguard and have an equal expense ratio. Still, for the most part, they are different in their methodology of generating dividend income.

Differences Between VIG and VYM:

These are two great dividends ETFs. They are similar in cost, with an expense ratio of 0.06%, but there are some differences to consider if you choose one. 

The Portfolio Composition:

VIG is more heavily concentrated in the Information Technology sector, with a concentration of 24% in the fund, and VYM only has about 6.7% of its portfolio dedicated to Technology. It shows that VIG concentrates on more growth stocks that tend to grow their dividends, like Microsoft, Visa, and Mastercard.

VYM concentrates on industries like Consumer Goods, Financials, and Healthcare. Their top companies in the fund are Johnson & Johnson, JP Morgan, and Exxon Mobil. These companies provide much higher dividends but are less growth-oriented than technology companies. 

The Performance of the Funds

VIG vs VYM Performance
credit: portfoliolabs

When people are looking for dividends, they are not actively looking at a fund's overall performance, but that is necessary to show the growth of individual stocks and allow the compensation to be a nice bonus.

VIG is a much higher performing ETF than VYM mainly because of its concentration in higher growth industries such as Technology. 

VIG has grown annually at 11.00% over the last ten years. It has risen 10.08% for five years, 9.66% over the last three years, and has lost 7.23% over the previous year. 

VYM has grown 9.70% over the last ten years and 7.54% in the previous five years.

These show you two different pictures. In the long term, VIG is outperforming VYM in returns. If you are looking for an ETF with more returns, VIG would be the ETF. 

The Dividend Yield

VIG vs VYM dividends
credit: portfolio labs

As mentioned before, these have different dividend yields. VIG has a yield of 1.81%, and VYM has a yield of 2.89%. 

VYM is the high dividend yield ETF, showing a much higher dividend for investors. Most dividend investors look for a higher yield, and VYM could be the choice for those dividend investors. 

VIG vs VYM: Which ETF to Choose?

credit: depositphotos

These two ETFs are very similar in tracking indexes of different dividend-producing stocks. VIG would be your best fund if you want a fund that produces higher returns with dividends. If dividend yields are what you like most of all, then you cannot go wrong with VYM. 

Each dividend ETF has its positives and negatives, and how you structure your portfolio depends on which one would be right for you. The best part is that they are both with Vanguard and have a low-cost expense ratio of 0.06%. 

Which one would you choose?

Related: SPY vs VOO: Which S&P 500 ETF is The Better Buy

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