SCHD vs VYM: Which Dividend ETF Is Better for Income Investors?

Key Takeaways

• SCHD offers a higher dividend yield (3.76%) compared to VYM’s 2.40%, providing significantly more immediate income for investors focused on cash flow
• VYM dramatically outperformed SCHD in 2025 (16.42% vs 5.48% total return) due to its higher technology sector exposure during the tech rally
• VYM provides broader diversification with 571 holdings versus SCHD’s 102 stocks, reducing individual company risk but potentially diluting performance
• Both funds charge an identical 0.06% expense ratio, making them equally cost-effective for long-term dividend investors
• SCHD concentrates heavily in energy (19.3%), consumer staples (18.5%), and healthcare (16.1%), while VYM tilts toward financials (21.2%) and technology (17.5%)
• Over the long term (10 years), performance remains nearly identical with SCHD at 11.72% annualized versus VYM’s 11.50%—sector performance drives yearly differences

Table of Contents

• Overview: SCHD and VYM at a Glance
• Investment Strategy Differences
• Dividend Yield Comparison
• Holdings and Diversification
• Sector Allocation Analysis
• Historical Performance and 2025 Results
• Expense Ratios and Costs
• Which ETF Is Better for You?
• Should You Own Both?
• Frequently Asked Questions

Overview: SCHD and VYM at a Glance

The Schwab U.S. Dividend Equity ETF (SCHD) and Vanguard High Dividend Yield ETF (VYM) represent two of the largest and most popular dividend-focused exchange-traded funds available to income investors. Both funds have attracted tens of billions in assets and deliver consistent quarterly dividends, but they take distinctly different approaches to dividend investing.

SCHD launched in October 2011 and manages approximately $71 billion in assets. It tracks the Dow Jones U.S. Dividend 100 Index, which screens for dividend quality using fundamental financial metrics. VYM launched earlier in November 2006 and commands around $84 billion in assets. It tracks the FTSE High Dividend Yield Index, focusing on broad exposure to the highest-yielding U.S. stocks.

According to analysis from The Motley Fool, these funds represent the two largest ETFs specifically targeting high-dividend stocks, making the choice between them crucial for income-focused portfolios.

Quick Comparison Table

Metric	SCHD	VYM
Inception Date	October 20, 2011	November 10, 2006
Assets Under Management	~$71 billion	~$84 billion
Dividend Yield	3.76%	2.40%
Expense Ratio	0.06%	0.06%
Number of Holdings	~102	~571
2025 Total Return	5.48%	16.42%
10-Year Annualized Return	11.72%	11.50%
Index Tracked	Dow Jones U.S. Dividend 100	FTSE High Dividend Yield

Investment Strategy Differences

The fundamental difference between SCHD and VYM lies in how each fund selects its holdings. Understanding these methodologies helps explain the performance differences and determines which fund better suits your investment goals.

SCHD’s Quality-Focused Approach

SCHD tracks the Dow Jones U.S. Dividend 100 Index, which employs a rigorous four-factor screening process to identify dividend stocks with strong fundamentals. To qualify for inclusion, companies must meet strict criteria:

• Dividend History: At least 10 consecutive years of dividend payments (no cuts or suspensions)
• Size and Liquidity: Minimum $500 million market capitalization and adequate daily trading volume
• Fundamental Strength: High scores across four financial ratios: cash flow to debt, return on equity, dividend yield, and 5-year dividend growth rate
• Portfolio Construction: Modified market-cap weighting with diversification requirements

This methodology emphasizes dividend sustainability and quality over simply chasing the highest yields. As noted by ETF.com’s comprehensive analysis, this approach filters out struggling companies offering artificially high yields due to depressed stock prices.

VYM’s Broad Market-Cap Approach

VYM tracks the FTSE High Dividend Yield Index, which takes a simpler approach focused on current yield and market size:

• Selection Criteria: Targets companies forecasted to have above-average dividend yields
• Weighting Method: Pure market-cap weighting, giving largest companies the biggest allocations
• Diversification: Broad exposure across 570+ stocks for maximum diversification
• REIT Exclusion: Excludes real estate investment trusts to maintain focus on traditional equities

VYM prioritizes breadth over selectivity, offering exposure to virtually every significant dividend-paying company in the U.S. market. The top holding, Broadcom, represents 8.69% of the fund due to its massive market capitalization and dividend payment.

Key Strategic Difference

SCHD asks: “Which companies have the strongest dividend fundamentals?” VYM asks: “Which large companies currently offer high yields?” This distinction creates different portfolio characteristics and potentially different long-term outcomes for investors.

Dividend Yield Comparison

For income investors, dividend yield is often the first metric examined. SCHD currently offers a significant yield advantage over VYM, which may surprise investors given that VYM explicitly targets “high dividend yield” in its name.

Current Yields

SCHD: 3.76% dividend yield
VYM: 2.40% dividend yield
Yield Advantage: SCHD provides 57% more income per dollar invested

On a $10,000 investment, SCHD would generate approximately $376 in annual dividends compared to VYM’s $240—a difference of $136 per year. Over a decade without reinvestment, that’s an extra $1,360 in income from SCHD.

Why the Yield Difference?

Several factors explain SCHD’s higher yield despite VYM’s “high yield” branding:

Concentration vs. Diversification: SCHD’s 102-stock portfolio allows for more selective focus on the highest-yielding quality companies. VYM’s 571 holdings necessarily include many lower-yielding stocks to maintain broad market representation.

Sector Allocation: SCHD allocates heavily to traditionally high-yielding sectors like energy (19.3%) and consumer staples (18.5%). VYM’s large technology allocation (17.5%) includes many lower-yielding growth stocks like Broadcom.

Quality Screens: SCHD’s fundamental screening naturally favors mature, cash-generative businesses that can sustain higher payouts. VYM includes any large-cap stock with above-average yield, even if payout sustainability is questionable.

Yield Stability

Both funds have maintained relatively stable yields historically, with quarterly fluctuations based on market conditions. SCHD underwent a 3-for-1 stock split in October 2024, which doesn’t affect yield calculations but does affect per-share dividend amounts. Neither fund’s yield suggests unsustainable dividend practices—both represent reasonable income from established companies.

Calculating Your Income

You can calculate potential dividend income using our Dividend Yield Calculator. For long-term projections with dividend reinvestment, try our Advanced Dividend Growth Calculator to see how SCHD or VYM might grow your portfolio over decades.

Holdings and Diversification

The number and composition of holdings creates vastly different risk profiles between these funds.

SCHD: Concentrated Quality

Total Holdings: Approximately 102 stocks
Top 10 Concentration: 40.2% of portfolio
Largest Holdings: Merck, Bristol Myers Squibb, ConocoPhillips

SCHD’s top holdings include:

• Merck & Co (MRK) – Healthcare
• Bristol Myers Squibb (BMY) – Healthcare
• ConocoPhillips (COP) – Energy
• Cisco Systems (CSCO) – Technology
• Amgen (AMGN) – Healthcare
• Coca-Cola (KO) – Consumer Staples
• PepsiCo (PEP) – Consumer Staples
• AbbVie (ABBV) – Healthcare

These holdings reflect SCHD’s focus on Dividend Aristocrats and near-aristocrats—companies with long histories of dividend increases and strong competitive positions.

VYM: Broad Market Exposure

Total Holdings: Approximately 571 stocks
Top 10 Concentration: Approximately 28% of portfolio
Largest Holding: Broadcom (8.69%)

VYM’s top holdings include:

• Broadcom (AVGO) – Technology – 8.69%
• JPMorgan Chase (JPM) – Financials – 4.06%
• Exxon Mobil (XOM) – Energy – 2.35%
• Johnson & Johnson (JNJ) – Healthcare – 2.32%
• Walmart (WMT) – Consumer Defensive – 2.25%
• AbbVie (ABBV) – Healthcare – 1.88%
• Bank of America (BAC) – Financials – 1.69%
• Home Depot (HD) – Consumer Cyclical – 1.66%
• Procter & Gamble (PG) – Consumer Defensive – 1.62%
• Cisco Systems (CSCO) – Technology – 1.43%

Overlap Analysis

SCHD and VYM share significant overlap in their holdings—both own many of the same blue-chip dividend payers. Companies appearing in both funds include Cisco, AbbVie, Coca-Cola, PepsiCo, and Procter & Gamble. However, the weighting differences mean that performance can diverge based on which stocks outperform.

Concentration Risk

SCHD’s concentrated approach means individual stock performance impacts the fund more significantly. A dividend cut from a top-10 holding would affect SCHD more than VYM. Conversely, strong performance from quality holdings can propel SCHD ahead of its more diluted competitor.

VYM’s broad diversification reduces individual company risk but also limits the impact of exceptional performers. This makes VYM more suitable for investors who prioritize stability and broad market exposure over the potential for outperformance.

Sector Allocation Analysis

Sector allocation represents one of the most significant differences between SCHD and VYM, creating distinct performance patterns across different market environments.

SCHD Sector Breakdown

• Energy: 19.3%
• Consumer Staples: 18.5%
• Healthcare: 16.1%
• Financials: 14.2%
• Industrials: 12.8%
• Technology: 9.7%
• Consumer Cyclical: 4.9%
• Utilities: 2.8%
• Communication Services: 1.7%

VYM Sector Breakdown

• Financials: 21.15%
• Technology: 17.52%
• Healthcare: 13.20%
• Industrials: 11.28%
• Consumer Defensive: 11.08%
• Energy: 8.39%
• Consumer Cyclical: 6.98%
• Utilities: 6.03%
• Communication Services: 2.43%
• Basic Materials: 1.92%

Key Sector Differences

Energy Allocation: SCHD’s 19.3% energy weighting compared to VYM’s 8.39% creates significant performance divergence when oil prices fluctuate. In 2025, energy weakness contributed substantially to SCHD’s underperformance, while the sector’s strength in 2022 boosted SCHD significantly.

Technology Exposure: VYM’s 17.52% technology allocation nearly doubles SCHD’s 9.7%, providing more exposure to mega-cap tech companies. This benefited VYM dramatically in 2025 as technology stocks led market gains. However, technology companies historically offer lower dividend yields, explaining part of VYM’s yield disadvantage.

Financial Services: VYM’s 21.15% financial allocation exceeds SCHD’s 14.2%, providing greater exposure to banks and financial institutions. This creates interest rate sensitivity—rising rates typically benefit banks through improved lending margins.

Sector Performance Implications

According to 24/7 Wall Street’s analysis, the sector differences mean SCHD and VYM perform differently across market cycles despite their 0.95 correlation. Energy rallies favor SCHD, while technology-driven bull markets favor VYM. Neither sector allocation is inherently superior—each suits different market environments and investor preferences.

Historical Performance and 2025 Results

Performance history reveals how SCHD and VYM have delivered returns through different market cycles, with 2025 highlighting the dramatic impact of sector allocation on short-term results.

2025: A Tale of Two Strategies

The year 2025 starkly illustrated how sector differences drive performance divergence between these otherwise similar funds:

VYM 2025 Total Return: 16.42%
SCHD 2025 Total Return: 5.48%
Performance Gap: VYM outperformed SCHD by nearly 11 percentage points

According to detailed analysis from AInvest, SCHD’s significant underperformance in 2025 stemmed from its minimal technology exposure during a year when tech stocks dominated market gains. The S&P 500 returned approximately 17% in 2025, driven largely by technology mega-caps—exactly the type of stocks underweighted in SCHD’s quality-focused, high-yield portfolio.

VYM’s 17.52% technology allocation, featuring substantial positions in Broadcom (8.69%), allowed it to participate in 2025’s technology rally. Meanwhile, SCHD’s heavy energy weighting (19.3%) created headwinds as energy sector performance lagged.

Long-Term Returns

10-Year Annualized Returns:

• SCHD: 11.72%
• VYM: 11.50%
• Difference: SCHD ahead by 0.22% annually

Over a decade, a $10,000 investment grew to approximately $30,500 in SCHD compared to $29,900 in VYM—a modest but meaningful $600 advantage for SCHD despite 2025’s substantial underperformance. This long-term near-parity demonstrates that while yearly performance can diverge dramatically due to sector allocation, both funds deliver comparable returns over extended periods.

Total Return Analysis

Total return (price appreciation plus dividends) provides the most complete performance picture. Both funds have delivered competitive total returns that match or exceed many broad market indices when dividends are reinvested. The power of DRIP investing (Dividend Reinvestment Plans) amplifies long-term wealth building in both funds.

Maximum Drawdown Comparison

Drawdown measures the largest peak-to-trough decline, indicating downside risk:

• SCHD Maximum Drawdown: -33.37%
• VYM Maximum Drawdown: -56.98%

SCHD’s smaller maximum drawdown reflects its quality-focused screening, which tends to exclude weaker companies that suffer disproportionately during bear markets. VYM’s broader exposure includes more companies affected by severe downturns, though this occurred primarily during the 2008-2009 financial crisis before SCHD existed.

Risk-Adjusted Returns

The Sharpe Ratio measures returns per unit of risk:

• SCHD Sharpe Ratio: 0.36 (current)
• VYM Sharpe Ratio: 1.08 (current)

VYM’s higher current Sharpe Ratio suggests better risk-adjusted performance recently, though these metrics fluctuate significantly based on time periods measured. The current favorable reading for VYM reflects 2025’s strong performance.

Early 2026 Performance

In the first few trading days of 2026 (through January 2), both funds posted slight gains with SCHD up 1.09% and VYM up 0.86% year-to-date—too early to draw meaningful conclusions but showing both funds starting the year positively.

Expense Ratios and Costs

Both SCHD and VYM charge rock-bottom expense ratios, eliminating cost as a deciding factor between them.

Identical Expense Ratios

SCHD Expense Ratio: 0.06%
VYM Expense Ratio: 0.06%

On a $10,000 investment, both funds charge just $6 annually in management fees. Over 10 years assuming 5% annual returns, total fees amount to approximately $77—remarkably low compared to actively managed funds that often charge 0.50% to 1.00% or more.

Tax Efficiency

Both funds are relatively tax-efficient for taxable accounts, primarily distributing qualified dividends taxed at favorable long-term capital gains rates. Neither fund generates excessive capital gains distributions from portfolio turnover. Portfolio turnover rates remain low for both funds, as passive index tracking minimizes trading activity.

Hidden Costs

Beyond expense ratios, consider these additional cost factors:

Bid-Ask Spreads: Both funds trade with tight spreads (typically $0.01) due to high liquidity. This minimizes transaction costs when buying or selling.

Tracking Error: Both funds closely track their underlying indices, with minimal deviation between fund performance and index performance.

Dividend Reinvestment: Most brokerages offer commission-free dividend reinvestment for ETFs, allowing you to compound returns without additional costs.

Which ETF Is Better for You?

Neither SCHD nor VYM is universally “better”—the right choice depends on your investment goals, risk tolerance, time horizon, and portfolio context.

Choose SCHD If You:

• Prioritize current income: The 3.76% yield provides significantly more immediate cash flow than VYM’s 2.40%
• Value dividend quality: SCHD’s fundamental screening emphasizes sustainable, growing dividends
• Accept concentration: You’re comfortable with 102 holdings and higher individual stock impact
• Seek dividend growth: SCHD’s methodology targets companies with 5-year dividend growth history
• Want value exposure: SCHD’s energy and consumer staples tilt provides more traditional value characteristics
• Are in or nearing retirement: Higher yield means more income without selling shares
• Believe in mean reversion: SCHD’s 2025 underperformance may create a buying opportunity if quality value stocks recover

Choose VYM If You:

• Want maximum diversification: 571 holdings dramatically reduces single-stock risk
• Prefer broad exposure: VYM captures virtually every significant dividend payer in the U.S. market
• Seek tech participation: VYM’s 17.52% technology allocation provides growth potential alongside income
• Favor simplicity: Pure market-cap weighting is straightforward and transparent
• Have a longer timeframe: VYM’s extra years of track record include major crises like 2008
• Want set-and-forget investing: Broad diversification requires less monitoring
• Prioritize total return: VYM’s 2025 performance shows it can capture market rallies better than SCHD

Consider Your Overall Portfolio

The right choice also depends on what else you own. If you already hold growth-focused ETFs or technology stocks, SCHD’s value and income tilt provides better portfolio balance. If you own other concentrated value funds, VYM’s broad exposure might complement better.

For investors building dividend-focused portfolios, compare these funds to our analysis of VYM vs VIG, which explores VYM compared to Vanguard’s dividend appreciation fund that emphasizes growth over yield.

Should You Own Both?

Given their 0.95 correlation and significant holdings overlap, owning both SCHD and VYM provides limited diversification benefits. The funds move together most of the time, making dual ownership potentially redundant.

When Owning Both Makes Sense

• Core-satellite approach: Use VYM as a broad core dividend holding, then add SCHD for extra yield and quality screening
• Gradual transition: If you own VYM but prefer SCHD’s approach, transition gradually to avoid tax consequences from selling
• Account separation: Hold SCHD in taxable accounts for higher qualified dividend income, VYM in tax-deferred accounts where dividend yield matters less
• Sector balance: Combine them to moderate SCHD’s energy concentration and VYM’s tech tilt

Better Diversification Alternatives

Rather than owning both SCHD and VYM, consider pairing one with complementary funds:

• SCHD + VIG: Combine SCHD’s high yield with VIG’s dividend growth focus for balanced dividend exposure
• VYM + Growth ETF: Pair VYM’s income with a growth-focused ETF for complete total return strategy
• SCHD + International Dividend ETF: Add international exposure to SCHD’s U.S.-only holdings

Making Your Decision

SCHD and VYM both represent excellent dividend ETF options with rock-bottom costs, solid track records, and reliable income. The choice between them comes down to your priorities:

For maximum current income and dividend quality: SCHD’s 3.76% yield and fundamental screening make it the stronger choice, especially after 2025’s underperformance potentially created a valuation opportunity.

For broad diversification and total return potential: VYM’s comprehensive market exposure and 2025 outperformance demonstrate its ability to capture market rallies while still providing solid dividend income.

Consider starting with one fund and using our dividend growth calculator to project how your choice might compound over time through reinvestment. Remember that both funds have delivered solid returns historically—the “wrong” choice between two excellent options is not a disaster, and many successful dividend investors own either SCHD or VYM as core holdings.

The key insight from 2025 is that sector allocation matters tremendously for short-term performance, but over the long term, both funds deliver comparable results. Choose based on whether you prefer SCHD’s higher income and quality focus or VYM’s broader exposure and total return potential.

Frequently Asked Questions

This article is for educational purposes only and does not constitute investment advice. Past performance does not guarantee future results. ETF values fluctuate with market conditions, and dividend payments can change. Both SCHD and VYM carry market risk, including the possibility of loss. The significant 2025 performance difference between these funds illustrates how sector allocation creates short-term volatility even in highly correlated funds. Always conduct your own research and consider consulting with a qualified financial advisor before making investment decisions.