Dividend stocks provide much-needed income for investors, and exchange-traded funds that focus on dividend stocks have become increasingly popular lately. Low-cost ETF provider Vanguard offers a couple of different dividend ETFs, but although they both share a commitment to helping shareholders benefit from dividends, their approaches are quite different. The Vanguard High Dividend Yield ETF (NYSEMKT:VYM) emphasizes dependable high-yield dividend stocks, while the Vanguard Dividend Appreciation ETF (NYSEMKT:VIG) focuses more on a company's history of dividend growth over time. Which makes more sense for you depends on your goals and aspirations for your dividend stock portfolio.

What Vanguard High Dividend Yield offers

Investors who want to maximize their current dividend income will like Vanguard High Dividend Yield's investment philosophy. The ETF focuses on stocks that pay above-average dividends compared to the rest of the stock market, with an emphasis on the immediate past in weighing dividend strength. The result is more than 400 different dividend stocks that are spread across many different sectors, including consumer goods, technology, financials, healthcare, and industrials.

Vanguard High Dividend Yield currently pays an SEC yield of 3.1%, which is about half again what you'd get from the S&P 500 or other broad-based stock market benchmark. With an expense ratio of just 0.08% annually, Vanguard High Dividend Yield provides a well-diversified dividend stock portfolio at an extremely reasonable price.

Vanguard Dividend Appreciation's key characteristics

By contrast, Vanguard Dividend Appreciation is concerned with things other than yield. Its investment philosophy stresses the track records of dividend stocks that have established long histories of consistently growing their payouts over time. For this Vanguard dividend ETF, high yield is not a requirement, and many of the ETF's roughly 200 holdings have dividend yields that are actually below the average for the stock market as a whole.

Indeed, when you look at the overall distribution yield for the Vanguard Dividend Appreciation ETF, you'll find that at 1.9%, it's slightly less than what the S&P 500 currently pays. However, what's especially interesting is that the ETF's sector allocations are much more concentrated. Almost a third of the ETF's holdings are invested in industrial stocks, with another 30% going to consumer goods and services stocks. Healthcare, financials, and technology also have smaller roles to play, but what's clear is that the overlap between the two funds isn't nearly as big as one might expect. At 0.08%, Vanguard Dividend Appreciation's expense ratio matches that of its fund family sibling.

ETF with rising piles of money.

Image source: Getty Images.

Which Vanguard dividend ETF should you pick?

The performance of both Vanguard ETFs has been relatively similar, and with costs being identical, there's no obvious reason for everyone to pick one ETF over the other. That makes it important to tailor your ETF choice to your particular situation.

Vanguard High Dividend Yield ETF is more likely to appeal to you if the following apply:

  • You need income from your dividend stock portfolio now in order to cover current living expenses.
  • You already have other ETFs or investments that focus on corporate growth and want more of an income-based philosophy from your dividend ETF selection.
  • A more broadly diversified portfolio appeals to you.
  • You're investing in a tax-favored account like an IRA and don't need to worry about paying tax on higher dividend distributions.

By contrast, Vanguard Dividend Appreciation ETF could be your favorite in the following cases:

  • You want the long-term performance advantages of dividend stocks but don't need the income now.
  • You're looking for this ETF to give you exposure both to dividends and future growth.
  • You like the concentrated bets that the ETF is making right now.
  • You're investing in a regular account, where taxes on smaller distributions than what Vanguard High Dividend Yield gives out leave you in a better tax situation.

Dividend ETFs can contribute to success in your investing portfolio, and either of these two Vanguard dividend ETFs make good choices for most investors. By deciding exactly what's most important to you, you'll be better able to make an informed selection between the two Vanguard dividend ETFs and find an investment that delivers everything you want.

Dan Caplinger has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.