Two of the best dividend ETFs in the marketplace are the Vanguard Dividend Appreciation ETF (VIG +0.91%) and the Schwab U.S. Dividend Equity ETF (SCHD +1.63%). While they share ultra-low expense ratios, strong long-term track records, and loyal investor followings, they differ in how they construct their portfolios.
The Vanguard Dividend Appreciation ETF is more of a pure dividend growth play. It requires companies to have a 10-year-plus track record of consecutive annual dividend growth.
The Schwab U.S. Dividend Equity ETF looks for strong balance sheet fundamentals, a history of dividend payments, dividend growth, and a high yield in its selection process.
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Either strategy can perform well under the right circumstances, but it's the portfolio composition that determines it.
VIG's market-cap-weighted strategy means Broadcom, Apple, and Microsoft are the three largest positions. Tech is also 28% of the portfolio, making it one of the more growth-tilted dividend ETFs.
SCHD has a more defensive orientation. Healthcare, consumer staples, and energy are its top three sector holdings, while tech accounts for only 10% of the fund. It's more focused on durability and financial quality.
SCHD vs. VIG: Which dividend ETF wins?
For income seekers, the Schwab U.S. Dividend Equity ETF is the better choice. It has twice the yield, and the quality screens ensure that the dividend is sustainable over time. The current 14-year streak of annual dividend growth proves that.
NYSEMKT: SCHD
Key Data Points
For those who want more growth than income, the Vanguard Dividend Appreciation ETF is the better choice. Its heavier growth and tech exposure mean the portfolio will likely be more volatile but also offer greater capital appreciation potential.
In the current environment, I prefer the Schwab U.S. Dividend Equity ETF. Geopolitical risks, high valuations, and inflation concerns raise red flags about how far the current rally can continue. Some defensive protection might be wise given this backdrop.
