Vanguard High Dividend Yield ETF outperforms Dividend Appreciation ETF over five years

The Vanguard High Dividend Yield ETF (VYM) has delivered a total return of 72% over the last five years, surpassing the 65% total return generated by the Vanguard Dividend Appreciation ETF (VIG). This performance gap highlights a divergence in strategy between the two funds, both of which maintain an identical 0.04% expense ratio.

VYM targets companies with higher-than-average current payouts, resulting in a trailing-12-month dividend yield of 2.3%. The fund holds 589 stocks and tracks the FTSE High Dividend Yield Index. Its sector allocation is led by financial services at 22%, technology at 17%, and healthcare at 14%. Largest positions in the fund include Broadcom Inc at 6.94%, JPMorgan Chase & Co at 3.83%, and ExxonMobil Holdings Corp at 2.70%. The ETF was launched in 2006 and has paid $3.68 per share over the trailing 12 months, based on a recent share price of approximately $157.03.

In contrast, VIG focuses on dividend growth, targeting companies that have raised dividends for at least 10 consecutive years. This strategy yields a lower trailing-12-month dividend yield of 1.5%, with $3.65 paid per share on a recent price of about $236.15. The fund holds 338 stocks and is heavily weighted toward technology, which accounts for 26% of its portfolio. Its largest positions are Microsoft Corp at 4.69%, Apple Inc at 4.52%, and Broadcom Inc at 4.36%. Like VYM, VIG was launched in 2006.

Over the five-year period, VYM achieved a compound annual growth rate of 11.5%, while VIG recorded a 10.6% CAGR. Both funds underperformed the S&P 500, which generated a total return of 89% and a CAGR of 13.6% during the same timeframe.

The differing compositions reflect distinct investment approaches. VYM favors value stocks with lower price-to-earnings multiples, such as ExxonMobil and JPMorgan Chase, to deliver high immediate income. VIG prioritizes long-term potential, holding tech stocks like Apple and Microsoft that possess high free cash flow to support rising dividends or buyback programs, despite lower current payout levels.

For cost-conscious investors, the fee structure is neutral between the two options. An investment of $10,000 in either fund would incur an annual fee of $4, reflecting the shared low-cost structure within the Vanguard family.