The Vanguard High Dividend Yield ETF (VYM) and the Schwab US Dividend Equity ETF (SCHD) are two of the largest dividend-oriented ETFs in the market. Even though both target stocks that pay higher-than-average dividends, the two funds use different criteria. Many investors compare SCHD vs VYM in order to determine which would the best fit for their portfolio.
A quick reminder that this site does NOT provide investment recommendations. Fund comparisons (such as this one) are not conducted to identify the “best” fund (since that will vary from investor to investor based on investor-specific factors). Rather, these fund comparison posts are designed to identify and distinguish between the fund details that matter versus the ones that don’t.
The Short Answer
SCHD and VYM use slightly different methodologies that has resulted in slight performance differences (especially since 2020). VYM is tilted more towards the value factor. Historical performance of SCHD vs VYM has been similar most years, but may depend on how the value and growth factors perform moving forward.
The Longer Answer
Historical Performance: SCHD vs VYM
Since the common inception date in 2011, performance has been relatively similar with an annualized difference of roughly 1.5%. This has compounded over time though and the cumulative performance differential is about 62%!
As the SCHD vs VYM chart of historical performance illustrates, the two funds performed similarly for a long time. However, SCHD has outperformed by a wide margin over the past several years.
Differences Between SCHD and VYM
The primary difference between these two funds is the methodology that they use to select which stocks are included.
SCHD first filters out any stocks that have not paid dividends for at least 10 years. The remaining stocks are then filtered based on fundamental criteria and then position and sector caps are instituted to keep the portfolio diversified.
VYM does share much about its methodology in its prospectus other than saying it will invest in stocks that pay higher than average dividends. Looking at the portfolio, this result in more of a value tilt and greater exposure to high-dividend low-growth sectors like utilities.
Geographic Exposure
Both SCHD and VYM hold essentially 100% US stocks, so I will not dig into country exposures or market classification here. For all intents and purposes, the two funds have identical country exposures.
Market Cap Exposure
Overall, the market cap exposures of SCHD and VYM are relatively similar.
| SCHD | VYM | |
| Large Cap | 79% | 76% |
| Mid Cap | 18% | 18% |
| Small Cap | 3% | 5% |
Sector Weights
Sector weights are relatively similar with just a notable difference in utilities.
| SCHD | VYM | |
| Basic Materials | 1.96% | 2.34% |
| Consumer Cyclical | 9.68% | 7.02% |
| Financial Services | 15.52% | 19.45% |
| Real Estate | 0.00% | 0.01% |
| Communication Services | 4.30% | 3.69% |
| Energy | 9.41% | 10.22% |
| Industrials | 18.34% | 12.16% |
| Technology | 12.23% | 9.62% |
| Consumer Defensive | 12.92% | 14.65% |
| Health Care | 15.34% | 13.63% |
| Utilities | 0.30% | 7.21% |
Expenses
Both SCHD and VYM only charge 6 basis points (or a .06% expense ratio).
Transaction Costs
ETFs are free to trade at many brokers and custodians, so both SCHD and VYM should be free to trade in most cases. Additionally, these funds are among the largest ETFs and are very liquid. The bid-ask spread of both SCHD and VYM is very low, so individual investor trades will not generally be large enough to “move” the market.
Tax Efficiency & Capital Gain Distributions
ETFs are typically more tax-efficient than mutual funds, due to their ability to avoid realizing capital gains through like-kind redemptions (a process that is beyond the scope of this post). Neither SCHD nor VYM has ever made a capital gains distribution (nor do I expect them to moving forward). Thus, these funds are about as tax-efficient as any fund can be and either fund is appropriate in taxable accounts, although the dividends do create a very slight tax drag.
Final Thoughts: SCHD vs VYM
Both funds are great ETFs that do what they are designed to do. I would not personally use dividend ETFs as the core of a portfolio, but that is a personal opinion and not necessarily the consensus. However, investors looking for a dividend-oriented fund could do a lot worse than using SCHD or VYM.
