SCHD vs. VYM: Which High-Yield ETF Should You Own?
Schwab U.S. Dividend Equity ETF outperforms Vanguard High Dividend Yield ETF by 12% year-to-date.
Intelligence analysis by Qwen 2.5 (3B)
Two high-yield ETFs, SCHD and VYM, are compared. The Schwab U.S. Dividend Equity ETF is favored due to its balanced portfolio and better performance.
The Schwab U.S. Dividend Equity ETF looks at different things to pick stocks, like how strong the company is and how much they've paid out in dividends before. The Vanguard High Dividend Yield ETF just picks stocks based on how much they pay out in dividends. The Schwab ETF does better because it picks better stocks overall.
Analysis
Schwab U.S. Dividend Equity ETF's Strategy
The Schwab U.S. Dividend Equity ETF considers several fundamental balance-sheet strength metrics, historical dividend growth rate, and yield in its stock selection process. This approach allows it to offer a solid 3.3% dividend yield.
Vanguard High Dividend Yield ETF's Strategy
In contrast, the Vanguard High Dividend Yield ETF selects stocks based solely on yield. It starts with a broad U.S. equity universe and invests in the top half of yields within that group. This approach results in a 2.4% yield, which is significantly lower than the Schwab ETF.
Portfolio Composition
The Schwab U.S. Dividend Equity ETF is overweight to consumer staples and healthcare, sectors likely to be more defensive and durable in an economic downturn. In contrast, the Vanguard High Dividend Yield ETF has greater allocations to financials, utilities, and tech, sectors that are more sensitive to interest rate movements.
Performance
The Schwab U.S. Dividend Equity ETF has outperformed the Vanguard High Dividend Yield ETF by more than 12% year-to-date, a significant advantage in today's high-interest rate environment.
Key points
- Schwab U.S. Dividend Equity ETF considers balance sheet strength, dividend growth, and yield in its stock selection process.
- Vanguard High Dividend Yield ETF selects stocks based solely on yield.
- Schwab U.S. Dividend Equity ETF has a better performance record and outperforms the Vanguard ETF by more than 12% year-to-date.
The Schwab U.S. Dividend Equity ETF's balanced approach could continue to outperform in a high-interest rate environment.
If interest rates drop unexpectedly, the Schwab U.S. Dividend Equity ETF's overweight to defensive sectors might not provide enough protection.
