As stock market volatility persists, many investors are turning to dividend-paying stocks to fight the roller-coaster ride. While these investors may be lagging S&P 500 index returns, the Vanguard High Dividend Yield ETF and SPDR S&P Dividend ETF have provided a smoother ride so far this year than the broader-based market index. While both exchange traded funds (ETFs) aim to achieve a similar goal, a few differences could have a bearing on which one you choose to buy.
A summary of our candidates
|
Metric |
Vanguard High Dividend Yield ETF (VYM 0.23%) |
SPDR S&P Dividend ETF (SDY +0.00%) |
|---|---|---|
|
Fund total net assets |
$20.5 billion |
$15.4 billion |
|
Annual expense ratio |
0.08% |
0.35% |
|
Number of stocks in fund |
380 |
112 |
|
Fund turnover rate |
9% |
32% |
|
Dividend yield |
3% |
2.4% |
|
Date of inception |
11/10/2006 |
11/8/2005 |
|
Fund composition |
A passively managed portfolio of large U.S. companies paying an above-average dividend yield. Holdings are market-cap weighted. |
The fund screens for U.S. high-yield dividend stocks that have increased their payout for at least 20 years. Holdings are weighted according to yield, and rebalanced quarterly. |
Data source: Vanguard and State Street Global Advisors. Chart by author.
Image source: Getty Images.
The first difference between these two funds is cost. True to Vanguard's form, the High Dividend Yield ETF keeps costs at a minimum by passively following a high-dividend payer index.
SPDR, on the other hand, manages its fund by rebalancing the holdings quarterly according to yield. That boosts costs somewhat, although at a mere 0.35% annual fee, it still is minimal. SPDR's offering has fewer stocks in the mix, a slightly lower dividend yield, and a higher turnover rate in the portfolio.
SPDR's screening process also makes for a different composition of the fund itself. While there is some overlap, the top 10 holdings of each fund help tell the story. Vanguard's assets are much more concentrated into fewer companies, whereas SPDR spreads its assets more evenly across the stocks making up the fund.
|
Vanguard High Dividend Yield ETF |
SPDR S&P Dividend ETF | ||
|---|---|---|---|
|
Company |
Percentage of Portfolio |
Company |
Percentage of Portfolio |
|
Microsoft |
7.2% |
Tanger Factory Outlet Centers |
2.1% |
|
JPMorgan Chase |
3.9% |
Realty Income |
2.1% |
|
Johnson & Johnson |
3.5% |
National Retail Properties |
2% |
|
ExxonMobil |
3.4% |
AT&T |
2% |
|
Intel |
2.5% |
AbbVie |
1.6% |
|
Chevron |
2.4% |
ExxonMobil |
1.6% |
|
Wells Fargo |
2.4% |
Target |
1.5% |
|
Cisco Systems |
2.3% |
Chevron |
1.5% |
|
Pfizer |
2.2% |
International Business Machines |
1.4% |
|
Verizon Communications |
2.1% |
Meredith |
1.4% |
Data source: Vanguard and State Street Global Advisors. Top 10 holdings as of June 6, 2018.
Going back to the earliest comparable date between these two funds shows that, while their compositions differ, actual performance is close. Total return -- which measures ETF price appreciation plus dividends paid, and accounts for the annual fee -- is a few percentage points higher on the SPDR S&P Dividend ETF.
Data by YCharts.
Which is better?
SPDR is not a pure yield play. It screens for companies that consistently increase dividends, which puts more emphasis on the stocks that have greater potential for share-price appreciation. Thus, if it's total return you're after, SPDR has been the better bet, as it's provided a little higher payoff over the years. If maximizing dividends and/or minimizing capital gains taxes is what you need, though, Vanguard's approach is a better option, with only single-digit turnover in its holdings each year and a bigger annual dividend yield.
However, one concern worth noting is that, because Vanguard's fund is concentrated into fewer holdings -- for instance, Microsoft currently makes up over 7% of the portfolio -- it could be more susceptible to price fluctuations if particular individual stocks get volatile. SPDR's offering has fewer holdings overall, but its ETF minimizes overconcentration into any single company.
That being said, the Vanguard High Dividend Yield ETF and SPDR S&P Dividend ETF are both good options if a dividend-oriented index is what you're after. The one that you choose will largely come down to your tax situation and whether dividend or capital gains taxes make more sense.
