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The list of dividend exchange traded funds is expansive and growing thanks to the trend of mutual fund-to-ETF conversions and the category – long a favorite of advisors and retail investors – is home to hundreds of billions of dollars in assets.
While the list of dividend ETFs is well-populated, featuring offerings from a slew of issuers, Vanguard accounts for of three largest funds in the category: the Vanguard Dividend Appreciation ETF (NYSE: VIG) and the Vanguard High Dividend Yield ETF (NYSE: VYM). Combined, those ETFs hold nearly $150 billion in assets under management, confirming their popularity with advisors and income-hungry investors.
Part of the reason VIG and VYM are hits is because of their low fees. The former charges 0.05% per year while VYM sports the requisite low fee expected of Vanguard funds – in this case 0.06% per year. That works out to $6 on a $10,000 investment.
With VIG and VYM both being low-fee dividend ETFs hailing from the same issuer, novice investors could get confused or assume that these funds are remarkably similar. The opposite is true, confirming that examination of these dividend ETF Goliaths is warranted. Read on for that.
The Views on VIG, VYM
VIG, as its name implies, is a dividend growth strategy. It follows the S&P U.S. Dividend Growers Index, which mandates that member firms have increased payouts for at least 10 straight years while excluding the 25% highest-yielding names from its selection universe.
Both criteria are pertinent because history has shown that some of the highest-yielding stocks attain that status for negative reasons (too much debt, weak balance sheets, etc.), which can prompt further negativity in the form of dividend cuts and suspensions. History also proves that dividend growth can reduce volatility within a portfolio while serving as a valuable inflation-fighting tool. VIG has lived up to its billing as volatility buffer.
“Over the past decade, Vanguard Dividend Appreciation ETF has matched its large-blend category average return but with 12% lower volatility,” notes Morningstar’s Bryan Armour. “Its Sharpe ratio—a measure of risk-adjusted return—beat the category average and even edged out the market index, an impressive feat given the dominance of cap-weighted and growth-oriented strategies in recent years.”
(Chart Courtesy: Morningstar)
Regarding VYM, which follows the FTSE High Dividend Yield Index, the ETF is arguably unique among rivals in the high-yield/high-dividend category because the Vanguard fund isn’t stretched on yield (2.63%) and it doesn’t lean heavily into typical high-yield/dividend sectors, such as real estate and utilities.
Reduced dependence on high-yield sectors can be an advantage for investors because those groups are sensitive to interest rates and typically sport slower rates of earnings growth than other sectors. VYM’s lower allocation to those segments has contributed to its long-term out-performance of the broader large-cap value category – a feat accomplished with lower volatility.
(Chart Courtesy: Morningstar)
Deciding Between the Two
As noted above, there’s barely any difference between the annual fees charged by VIG and VYM so advisors and investors need to move beyond that trait if they’re attempting to break a tie between these two ETFs.
Morningstar’s Armour points out that, not surprisingly, the income advantage goes to VYM, but there’s a caveat here. VYM may be the better option for retirees or those nearing retirement because they’re apt to need or want some income now. On the other hand, investors with longer time horizons may prefer to leverage that time luxury, reinvesting VIG’s dividends while enjoying that ETF’s potential for better total returns.
“Vanguard Dividend Appreciation ETF focuses on companies that increase cash dividends through earnings growth. A long record of dividend increases is often a proxy for sustained business success,” adds Armour. “From January 2007 to May 2025, Vanguard Dividend Appreciation ETF posted a 9.52% annualized return, outpacing Vanguard High Dividend Yield ETF by 1.15 percentage points on a total return basis.”
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