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SCHD vs. VYM: Which is the Better Dividend ETF?
Stock Analysis & Ideas

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

Story Highlights

These are two of the market’s largest and most popular dividend funds. Which of these two dividend stalwarts looks like the better dividend ETF for investors right now?

The Schwab US Dividend Equity ETF (NYSEARCA:SCHD) and the Vanguard High Dividend Yield Index ETF (NYSEARCA:VYM) are two of the largest and most popular dividend ETFs in the market today. While both have lagged the broader market this year as growth stocks have taken off and left their value and dividend counterparts behind, dividend stocks never truly go out of style.

Research shows that investing in dividend stocks has been a winning strategy over the long term, as dividend-paying stocks have outperformed an equal-weighted S&P 500 Index (SPX) over the past 50 years. Dividend-paying stocks posted a 9.2% annualized total return versus an annualized total return of 7.7% for an equal-weighted S&P 500 Index. With this in mind, let’s compare SCHD and VYM and see which is the better dividend ETF right now. 

Plenty in Common

SCHD is Schwab’s ETF that invests in U.S. dividend stocks, tracking the total return of the Dow Jones U.S. 100 Dividend Index. Meanwhile, VYM invests in high-yield dividend stocks and tracks the FTSE High Dividend Yield Index. 

Both ETFs have nearly $50 billion in assets under management (AUM). They also share identical expense ratios of 0.6%. This is an attractive expense ratio and means that an investor allocating $10,000 into either fund would pay just a very reasonable $6 in fees in year one. Over the course of a decade, this investor would pay just $77 in fees (assuming a 5% return per year).

These are very reasonable expense ratios that save investors money over the long run and help them to preserve the principal of their portfolios over time. 

Portfolio Comparison

SCHD holds just over 100 stocks, and its top 10 holdings account for 40.2% of the fund. Below, you can get an overview of SCHD’s top 10 holdings using TipRanks’ Holdings Tool.

SCHD’s top holding is semiconductor giant Broadcom (NASDAQ:AVGO), and it is joined in the top five by fellow semiconductor name Texas Instruments (NASDAQ:TXN). While we don’t always think of semiconductor stocks as dividend stocks, these are both solid dividend payers that currently yield ~2% and 2.7%, respectively, while offering plenty of long-term growth potential.

Broadcom features an impressive Smart Score of 9 out of 10, while Texas Instruments scores a ‘Perfect 10.’ The Smart Score is a proprietary quantitative stock scoring system created by TipRanks. It gives stocks a score from 1 to 10 based on eight market key factors. A Smart Score of 8 or higher is equivalent to an Outperform rating. 

Outside Broadcom and Texas Instruments, SCHD’s top 10 holdings include consumer staples giants like Coca-Cola (NYSE:KO) and Pepsi (NASDAQ:PEP), plus healthcare leaders like AbbVie (NYSE:ABBV) and Amgen (NYSE:AMGN) that are all well-known for their dividends. 

Turning to VYM, the Vanguard ETF is more diversified than SCHD, holding 466 stocks. Furthermore, its top 10 holdings account for just 25.2% of the fund. See below for a table of VYM’s top 10 holdings.

As you can see, Broadcom also finds a place in VYM’s top 10 holdings. Home Depot (NYSE:HD), Pepsi, and AbbVie are also present in the top 10 for each fund. 

VYM’s largest holding is international energy mega cap ExxonMobil (NYSE:XOM), and it is joined in the top 10 by another energy mainstay, Chevron (NYSE:CVX). 

Overall, both of these ETFs have strong portfolios of blue-chip dividend stocks, and there is some overlap between the top holdings.   

Is SCHD Stock a Buy, According to Analysts?

Turning to Wall Street, SCHD has a Hold consensus rating, as 42.29% of analyst ratings are Buys, 46.26% are Holds, and 11.45% are Sells. At $79.93, the average SCHD stock price target implies 8.8% upside potential.

Is VYM Stock a Buy, According to Analysts?

VYM has a Moderate Buy consensus rating, as 48.59% of analyst ratings are Buys, 43.09% are Holds, and 8.32% are Sells. At $119.48, the average VYM stock price target implies 12% upside potential.

Dividend Yields: Look Beyond the Name

You can’t compare dividend ETFs without looking at which has a higher dividend yield. Somewhat ironically, right now, SCHD has a higher yield than the high-yield-focused VYM, with a yield of 3.6% versus VYM’s 3.1%, making it the winner from a dividend yield perspective. Both of these yields are superior to the broader market; the S&P 500 currently yields just 1.6%.

There is more to a dividend than just its yield. It’s also useful to look at an ETFs track record in terms of how many years it has paid a dividend and for how many years it has increased its dividend payments. SHCD has paid an annual dividend for 10 years in a row and has increased its annual payout for 10 straight years. VYM has paid an annual dividend for 15 years in a row and increased its annual payout for 12 straight years. Both have great track records in this area, with VYM boasting a slightly longer one. 

Comparing Their Long-Term Performances

In addition to dividend payments, it’s important to compare how these ETFs have performed over time. As of the end of June, VYM has compiled a very respectable three-year annualized return of 13.9%. Over a five-year time frame, its annualized total return is 8.5%, and over a 10-year time frame, its annualized total return comes in at 9.9%, which are both solid results. 

Meanwhile, SCHD has posted an even better 15.8% annualized total return over three years, 11.8% over five years, and 11.7% over 10 years, outperforming VYM over all three time frames. 

Below, you can compare SCHD and VYM using TipRanks’ ETF Comparison Tool, which allows investors to compare up to 20 ETFs at a time based on a variety of customizable factors.  

Investor Takeaway

These both look like good ETFs with solid long-term performance track records, above-average dividend yields, and diversified portfolios of blue-chip dividend stocks. However, right now, SCHD looks like the top choice based on its higher dividend yield and consistently stronger performance over the past three, five, and 10-year time frames.  

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