SCHD vs VYM: Comparing Two Popular Dividend ETFs

This article compares SCHD vs VYM — Schwab’s U.S. Dividend Equity ETF and Vanguard’s High Dividend Yield ETF. 

Both are passively-managed index ETFs popular with dividend investors and retirees looking to earn yields above total market ETFs such as VTI.

Index ETFs track market indexes, such as the S&P 500. 

SCHD and VYM are narrower-scoped ETFs that track specific dividend-focused indexes. Each fund has fewer stock holdings than the S&P 500. 

SCHD tracks the Dow Jones U.S. Dividend 100™ Index. VYM tracks the Financial Times Stock Exchange (FTSE, or “Footsie”) High Dividend Yield Index.

Both funds own shares of the largest U.S. dividend-paying companies and pay dividends.

Passive index ETF managers do not pick stocks. They allocate funds to all stocks in the benchmark index to track its performance. Managers receive a small fee to achieve this outcome.

Since most actively managed mutual funds do not beat their target benchmarks, many fiduciary financial planners recommend index funds and ETFs instead of actively managed funds or individual stocks.

Bottom Line Upfront (BLUF)

Before I get into the details of SCHD vs VYM, it’s important to keep the following in mind:

• Both funds are excellent, low-fee options for your portfolio. 
• SCHD has outperformed VYM over a ten-year investment horizon (see chart below). Past performance is not indicative of future returns.
• VYM is better diversified, while SCHD has more holdings concentration risk. VYM has four times as many holdings as SCHD.
• Both ETFs are available to purchase from any online broker. I prefer M1 Finance.
• If you have an account with Vanguard or Schwab, you can own similar mutual funds (see the mutual funds section).

Please note that both ETFs update their prospectuses regularly. The information referenced in this article will change over time.

The best resource for both funds is the respective company’s websites.

Here are links to the most updated information at Schwab and Vanguard. Consider the information on those pages to be the authoritative data source.

• Schwab’s U.S. Dividend Equity ETF (SCHD)
• Vanguard’s High Dividend Yield ETF (VYM)

SCHD vs VYM — Side-by-Side Comparison

Here’s a side-by-side comparison of both ETFs. Scroll right on mobile.

A few noticeable differences comparing SCHD vs VYM:

• SCHD has a higher yield. 
• The benchmark indexes are different.
• VYM is larger, older, and more diversified.
• Both expense ratios are very low — identical at the time of writing.
• SCHD has outperformed VYM over three, five, and ten-year periods. 
• VYM has four times as many holdings, and SCHD has a higher concentration percentage on the top 10 holdings.

SCHD vs VYM — Benchmark Indexes

SCHD tracks the Dow Jones U.S. Dividend 100™ Index. 

Visit this page for the latest information about the index.

Stocks must pass the following screens to be eligible for inclusion in the index: 

• Minimum 10 consecutive years of dividend payments
• Minimum float-adjusted market capitalization (FMC) of US$ 500 million
• Minimum three-month ADVT of US$ 2 million

Stocks passing all three screens are ranked in descending order by Indicated Annual Dividend (IAD) yield, defined as a stock’s IAD (not including any special dividends) divided by its price. The top half of securities based on this ranking are eligible for stock selection. Excludes REITs.

VYM tracks the Financial Times Stock Exchange (FTSE, or “Footsie”) High Dividend Yield Index.

Visit this page for the latest information about the index.

According to the Vanguard VYM Factsheet, the FTSE High Dividend Yield Index is derived from the U.S. components of the FTSE Global Equity Index Series (GEIS).

• Includes stocks with the highest dividend yields.
• Excludes REITs, which generally do not benefit from currently favorable tax rates on qualified dividends.
• Uses buffer zones during annual rebalancing to reduce portfolio turnover.

SCHD vs VYM Chart — Performance

The performance of these two funds tracked similarly for several years but diverged since 2018.

Here is a daily updated SCHD vs VYM chart compared against each other over ten years. Scroll right on mobile.

Embed this chart in your website using the following code. Please include the link for attribution:

<p style="text-align: center;"><iframe width="700" height="450" seamless frameborder="0" scrolling="yes" src="https://docs.google.com/spreadsheets/d/e/2PACX-1vSaRsfx09pTTulAjgJff78V8dJ0PkN-1cNn2lFNeA7xz12MYVoXGllCzJwiKpfXC8plGHUhLLD3h3zq/pubchart?oid=233418497&amp;format=interactive"></iframe></p><p style="text-align: center;"><span style="font-size: 10pt;">Source: <a href="https://www.retirebeforedad.com/schd-vs-vym/">RetireBeforeDad.com/schd-vs-vym</a></span></p>

Past performance is not indicative of future results. 

Though SCHD has outperformed VYM over the past ten years, either fund is suitable as an income-producing asset in your portfolio. 

See the table above for up-to-date three, five, and ten-year average annual performance records.

SCHD vs VYM — Dividend Payout Schedules

Both SCHD and VYM pay quarterly dividends. 

Investors receive quarterly dividend payments in March, June, September, and December.

SCHD vs VYM — Top Ten Holdings

Here are the top ten holdings for each index fund. Visit the links at the beginning of the article for the most updated lists. 

 

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Mutual Fund Alternatives

Here are the closest mutual fund alternatives for both ETFs.

• SCHD ~ SWDSX (not identical, actively managed)
• VYM = VHYAX (identical)

Charles Schwab does not have an identical index mutual fund to compare against SCHD. The closest mutual fund is the Schwab Dividend Equity Fund™ (SWDSX).

The SWDSX is an actively managed mutual fund with an expense ratio close to 1%. It has drastically underperformed SCHD, yields less, and costs more. 

SWDSX is NOT recommended. 

The VYM has a twin fund called the Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX). Investors with an account at Vanguard who prefer mutual funds can consider this fund as an alternative to VYM. 

Accounts anywhere else should use the VYM or SCHD ETFs.

Mutual funds trade differently than ETFs, which trade like stocks. 

ETFs are easier to own, and the price changes throughout the day. Mutual funds only trade at the market close. 

Active investors typically use ETFs for trading purposes or to buy and hold indexes when they can’t access index mutual funds.

For example, if you have an investing account with M1 Finance, you’d invest via ETFs instead of mutual funds. If your account is with Vanguard, you may benefit from using the index funds VHYAX. 

• Learn more about SWDSX here
• Learn more about VHYAX here 

Use the above resources to find the most up-to-date information regarding SWDSX vs VHYAX.

Fidelity Alternatives

If you have a Fidelity account and prefer their funds, there are limited options for similar ETFs or mutual funds.

Here they are :

• Fidelity High Dividend ETF (FDVV)
• Fidelity Strategic Dividend & Income Fund (FSDIX)
• Fidelity Dividend Growth Fund (FDGFX)

Both mutual funds have underperformed SCHD and VYM.

FDVV has slightly outperformed VYM and underperformed SCHD over the past five years. 

What is the Best Broker to Buy SCHD or VYM?

Here are my favorite online brokers for investing in ETFs and automatically reinvesting dividends. 

Charles Schwab and Vanguard are excellent choices for long-term retirement investors. You’re in good hands if your IRA or employer-sponsored plan is with either broker.

I recommend another broker for a more modern user experience that can also serve your banking, borrowing, and spending needs. 

Long-term investors may prefer an online broker better for dollar cost averaging and dividend reinvestment. 

I’m a big fan of the online brokerage M1 Finance. M1 Finance is a reliable, robust, no-fee online broker for beginner and intermediate investors. It’s easy to get started.

As your investing skills and portfolio mature, M1 is one of the best platforms to scale.

Investing in stocks and ETFs is 100% free on the platform. They also offer an integrated checking account and low borrowing rates. Read my complete M1 Finance review here. 

M1 Finance does not offer mutual funds. However, ETFs are plentiful. It’s my favorite online broker for everyday investing. 

The platform is more intuitive than old-school brokers because it’s built on a modern technology platform.

You create portfolio “pies” that contain all the stocks and ETFs you want to own and in what percentages. Simply add an ETF to a pie and add funds to your account. 

Learn More about M1 Finance

Conclusion

Deciding between SCHD vs VYM comes down to the investor’s risk tolerance for holdings concentration — including the total number of holdings and percentage allocation of the top 10 holdings. 

SCHD has outperformed VYM over the past 10 years. However, SCHD has a greater concentration of risk exposure in the top 10 holdings.

The implosion of one top holding in the SCHD ETFs would have a more significant impact on the total returns of the entire fund.

VYM has four times as many holdings as SCHD.

Investors with a higher risk tolerance whose objectives require higher dividend yields should choose SCHD.

Investors with a lower risk tolerance who prefer a more diversified ETF and still want to receive a higher dividend than a standard S&P 500 or total market EFT should choose VYM. 

Purchase either ETF at any commission-free online broker. 

Please reply with your questions regarding SCHD vs VYM in the comments section below. Include any requests you have about adding more detail to this article. 

Disclosure: The author is long VTI and SCHD. I’ve chosen the SCHD fund for myself, but please evaluate both funds in the context of your personal investment objectives before choosing which is right for you.