VIG vs SCHD: Understanding the Key DifferencesLAST UPDATED: April 12, 2023 | By Conrad Golly
Investors looking for dividend ETFs may be considering Vanguard’s VIG and Schwab’s SCHD. Both ETFs focus on dividends, but there are some key differences between the two. As someone who has researched and invested in both VIG and SCHD, I can provide insights into what sets them apart.
VIG vs SCHD: VIG and SCHD have the same expense ratio, which is a low 0.06%. However, VIG has a lower exposure to the industrials sector than SCHD. Additionally, VIG has a higher standard deviation, which means it may be riskier than SCHD. Despite this, VIG has still been a popular choice for investors who want exposure to dividend growth stocks.
When it comes to returns, SCHD has outperformed VIG over the past ten years.
SCHD looks for high-quality companies with a sustainable dividend via profitability screens, while VIG is comprised of dividend growth stocks, companies with a historically increasing dividend over the past 10 years. Both funds exclude REITs.
Since SCHD’s inception in 2011, it has delivered a higher return than VIG with slightly higher volatility.
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VIG vs SCHD Overview
When it comes to dividend-oriented ETFs, two popular options are Vanguard Dividend Appreciation ETF (VIG) and Schwab US Dividend Equity ETF (SCHD).
Both ETFs have similar objectives, but they have some differences that may make one more suitable for your investment goals than the other.
One of the main differences between VIG and SCHD is their approach to selecting dividend-paying stocks.
VIG tracks the NASDAQ US Dividend Achievers Select Index, which includes companies that have a history of increasing their dividends over time.
On the other hand, SCHD tracks the Dow Jones US Dividend 100 Index, which includes companies that have a high dividend yield and a history of consistently paying dividends.
Another difference is the sector allocation of the two ETFs.
VIG has a higher concentration in the consumer goods and healthcare sectors, while SCHD has a higher concentration in the financial and industrial sectors.
This means that if you have a preference for certain sectors or want to diversify your portfolio, one ETF may be more suitable for you than the other.
When it comes to performance, both VIG and SCHD have had solid returns over the years.
According to Dividend Power, SCHD has had an annualized total return of 12.75% in the last five years, while VIG has had an annualized return of 11.35%.
However, past performance is not a guarantee of future results, and it is important to do your own research and consider your investment goals before making a decision.
VIG vs SCHD Fund Composition
When it comes to the composition of the VIG and SCHD funds, there are some key differences that investors should be aware of.
Firstly, VIG is a Vanguard Large Blend fund that seeks to track the performance of the NASDAQ US Dividend Achievers Select Index.
This index includes companies with a history of increasing dividends for at least 10 consecutive years.
On the other hand, SCHD is a Schwab ETFs Large Value fund that seeks to track the performance of the Dow Jones U.S. Dividend 100 Index, which includes 100 high dividend yielding U.S. companies.
In terms of sector exposure, VIG has a lower exposure to the industrials sector compared to SCHD.
VIG also has a higher standard deviation, which means that it has a higher level of volatility compared to SCHD.
Both funds have a similar expense ratio of 0.06%.
Here is a breakdown of the top holdings of each fund as of the end of March 2023:
VIG Top Holdings
- Microsoft Corp
- Apple Inc
- Visa Inc Class A
- Procter & Gamble Co
- Mastercard Inc Class A
SCHD Top Holdings
- Verizon Communications Inc
- AT&T Inc
- Exxon Mobil Corp
- Abbott Laboratories
- Chevron Corp
It is important to note that the composition of these funds can change over time as new companies are added and existing companies are removed.
Investors should regularly review the holdings of these funds to ensure that they align with their investment goals and risk tolerance.
Both VIG and SCHD have their own unique characteristics that may appeal to different types of investors.
It is important to do your own research and consider your own investment goals before making any investment decisions.
VIG vs SCHD Industry Exposure
When comparing VIG and SCHD, it is important to consider their industry exposure. VIG is less exposed to the Industrials sector than SCHD, with 17.23% versus 18.05%, respectively.
VIG’s exposure to Financial Services and Healthcare stocks is also lower and higher, respectively, with 17.18% versus 21.69% and 15.52% versus 12.64%. It is interesting to note that both funds exclude REITs.
Specifically, SCHD and VIG only have about 17% overlap by weight. This means that investors who want to diversify their portfolio across different sectors may consider investing in both funds.
To better understand the sector composition of VIG and SCHD, let’s take a look at the table below:
As we can see, SCHD has roughly zero exposure to Utilities and VIG has roughly zero exposure to Telecom and Energy.
This may be relevant for investors who want to avoid certain sectors or who want to focus on specific sectors.
VIG vs SCHD Holdings
When it comes to holdings, VIG and SCHD have some similarities, but also some notable differences. Both ETFs focus on dividend-paying stocks, but their selection criteria and sector allocations differ.
VIG, or the Vanguard Dividend Appreciation ETF, tracks the performance of the NASDAQ US Dividend Achievers Select Index.
This index includes companies that have a history of increasing their dividends for at least 10 consecutive years.
As a result, VIG tends to hold stocks of large, established companies with a strong track record of consistent dividend growth.
The top sectors in VIG are Information Technology, Consumer Discretionary, and Healthcare.
SCHD, or the Schwab US Dividend Equity ETF, tracks the performance of the Dow Jones US Dividend 100 Index.
This index includes companies that have paid dividends for at least 10 consecutive years and meet certain size and liquidity requirements.
SCHD tends to hold stocks of large, established companies with a focus on value and dividend yield. The top sectors in SCHD are Consumer Staples, Information Technology, and Healthcare.
One notable difference between VIG and SCHD is their exposure to certain sectors.
For example, VIG is less exposed to the Industrials sector than SCHD, while SCHD is less exposed to the Consumer Staples sector than VIG.
Additionally, VIG has a higher exposure to the Consumer Discretionary sector than SCHD, while SCHD has a higher exposure to the Energy sector than VIG.
Overall, both VIG and SCHD provide exposure to dividend-paying stocks, but their selection criteria and sector allocations differ.
Investors should consider their own investment goals and risk tolerance when deciding between the two ETFs.
VIG vs SCHD Risk Analysis
When it comes to investing, risk is always a factor to consider.
Both VIG and SCHD are considered relatively low-risk investments, but there are some differences to note. Firstly, VIG has a higher concentration of stocks in the Consumer Defensive sector, which includes companies that produce essential goods like food and household products.
This sector tends to be less volatile than others, so VIG may be considered slightly less risky in this regard. On the other hand, SCHD has a higher concentration of stocks in the Energy sector, which can be more volatile due to factors like changes in oil prices and geopolitical tensions.
This may make SCHD slightly riskier in terms of sector exposure. In terms of individual stock risk, both VIG and SCHD have similar strategies of investing in companies with a history of consistent dividend growth.
VIG has a slightly higher average market capitalization, which may make it more susceptible to market downturns.
Both VIG and SCHD are considered relatively low-risk investments, but the slight differences in sector exposure and market capitalization may make one more suitable for certain investors depending on their risk tolerance and investment goals.
VIG vs SCHD Performance
When it comes to performance, both VIG and SCHD have shown strong results in the past. However, there are some key differences to consider.
Looking at the past five years, VIG has had a slightly higher average annual return of 16.96% compared to SCHD’s 16.83%. However, SCHD has had a higher dividend yield, averaging 3.34% compared to VIG’s 1.98%. It’s important to note that past performance is not a guarantee of future results. However, it can be helpful to look at historical trends when making investment decisions.
Another factor to consider is the holdings of each ETF. VIG focuses on companies with a history of increasing dividends, while SCHD focuses on companies with a track record of consistent dividends.
This difference in strategy can impact performance depending on market conditions. In terms of fees, both VIG and SCHD have low expense ratios of 0.06%.
This means that investors can benefit from the strong performance of these ETFs without paying high fees.
Both VIG and SCHD have shown strong performance in the past and have low fees.
However, investors should consider their individual investment goals and risk tolerance when deciding which ETF to invest in.
Verdict: VIG vs SCHD
Recommended similar ETFs to VIG vs SCHD
After comparing VIG and SCHD, it is clear that both ETFs have their strengths and weaknesses.
VIG focuses on dividend growth while SCHD focuses on high dividend yields. Investors should consider their investment goals and risk tolerance before choosing between these two ETFs.
For investors looking for a similar ETF to VIG, the iShares Select Dividend ETF (DVY) is a good option.
DVY tracks an index of high dividend yielding US stocks and has a similar expense ratio to VIG.
However, DVY has a higher standard deviation than VIG, which means it may be more volatile. Investors who prefer SCHD may want to consider the WisdomTree US Quality Dividend Growth Fund (DGRW).
DGRW tracks an index of US stocks with high dividend growth potential and has a similar expense ratio to SCHD.
However, DGRW has a lower dividend yield than SCHD and may not be suitable for investors looking for high income. Overall, both VIG and SCHD are solid ETFs for investors looking for exposure to US dividend-paying stocks.
It is important to consider your investment goals and risk tolerance before choosing between these two ETFs or their recommended alternatives.