The Schwab U.S. Dividend Equity (SCHD) and Vanguard Dividend Appreciation Index Fund ETF Shares (VIG) ETFs are some of the most popular dividend funds in the US, with over $73 billion and $109 billion in assets under management (AUM).
These funds are preferred by investors who love their higher dividend payouts than the S&P 500 Index. They are also seen as good funds for diversification purposes. This article compares the two and identifies the best one to buy.
SCHD ETF
The SCHD ETF is a common dividend fund that tracks the Dow Jones US Dividend 100 Index. This index tracks quality companies that have strong fundamentals and those that have a strong record of growing their dividends.
The SCHD avoids some of the top dividend payers in the US, like Real Estate Investment Trust (REIT) and MLPs. Instead, most of the companies in the fund are in the energy, consumer staples, health care, industrials, and technology.
Energy giants like Chevron and ConocoPhillips are the biggest companies in the fund. The other top names are Altria Group, PepsiCo, Abbvie, and Home Depot.
The SCHD ETF has accumulated over $72 billion in assets and has a dividend yield of 3.6%. Its expense ratio is 0.060%, making it one of the cheapest funds in the US. With the current assets and the expense ratio, the fund makes about $43 million for the company.
VIG ETF
The Vanguard Dividend Appreciation, on the other hand, tracks the S&P US Dividend Growers Index, which invests in large-cap companies known for growing their payouts.
It is a much higher fund that tracks 337 companies, which have a median market capitalization of $220 billion. A look at its valuations show that the average P/E ratio is 25.1x, higher than SCHD’s 17x.
The biggest companies in the VIG ETF are in the technology sector followed by the financials, health care, and consumer staples. Some of the top names in the fund are Broadcom, Microsoft, JPMorgan, and Apple. VIG has a dividend yield of 1.65% and an expense ratio of 0.05%.
SCHD vs VIG ETFs: better buy
The main reasons why investors buy VIG and SCHD is so that they can get high dividends and growth. In this regard, their yields of 3.65% and 1.65% do not justify the name because it is not big enough.
For example, the Vanguard S&P 500 ETF (VOO) has a1.18% yield and is not considered a dividend fund. The same is true with the DIA ETF that tracks the Dow Jones, which yields 1.47%.
While the bond market offers limited growth, the iShares 20+ Year Treasury Bond ETF (TLT) offers a better yield at 4.45%, while the SPDR® Bloomberg 1-3 Month T-Bill ETF (BIL) pays 4.4%.
In terms of returns, the VIG ETF has been a better investment over time because of its exposure to the technology sector. VIG’s total returns in the last five years was 77% compared to SCHD’s 73%. The total return is a more accurate metric because it encompasses both stock performance and dividend returns.
The same has happened this year as the VIG has jumped 8.82% and the SCHD has risen 3.94%. This makes the lower-yielding VIG a better buy. However, the S&P 500 Index has always beaten two, making it a better long-term investment.
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