VYM vs VIG: Which Vanguard Dividend ETF Should You Buy?

Key Takeaways

• VYM targets high current dividend yields (2.4-2.5%), while VIG focuses on consistent dividend growth with a lower yield (1.6-1.8%)
• VIG has outperformed VYM historically, delivering 13.1% annualized returns versus VYM’s 11.3% over the past decade
• Both ETFs charge ultra-low expense ratios of 0.05-0.06%, making them highly cost-effective dividend investment options
• VYM offers more immediate income for retirees and income-focused investors, while VIG provides better total return potential for long-term investors
• VIG holds more technology and healthcare stocks; VYM tilts toward financials, energy, and utilities for higher yields
• The funds are 93% correlated, meaning they move similarly but serve different investor objectives and time horizons

Table of Contents

• ETF Overview: VYM and VIG at a Glance
• Investment Strategy Differences
• Historical Performance Comparison
• Dividend Yield Analysis
• Portfolio Holdings and Sector Allocation
• Fees, Liquidity, and Trading Considerations
• Risk and Volatility Comparison
• Which ETF Should You Choose?
• Alternative Dividend ETFs to Consider

ETF Overview: VYM and VIG at a Glance

Vanguard offers two of the most popular dividend-focused exchange-traded funds available to investors: the Vanguard High Dividend Yield ETF (VYM) and the Vanguard Dividend Appreciation ETF (VIG). Despite both being Vanguard funds focused on dividend-paying stocks, these ETFs follow fundamentally different strategies and serve distinct investor needs.

VYM, launched in November 2006, tracks the FTSE High Dividend Yield Index. This fund targets companies with above-average dividend yields, selecting stocks that offer higher immediate income. The ETF holds approximately 565 stocks, providing broad diversification across dividend-paying companies while excluding real estate investment trusts (REITs).

VIG, which debuted slightly earlier in April 2006, tracks the S&P U.S. Dividend Growers Index (formerly NASDAQ US Dividend Achievers Select Index). This fund focuses exclusively on companies that have increased their dividends for at least 10 consecutive years. Additionally, VIG excludes the highest-yielding 25% of eligible stocks to avoid potential “yield traps”—companies with unsustainably high dividends. The fund holds around 325 stocks.

Combined, these two ETFs manage over $140 billion in assets, reflecting their widespread acceptance among dividend investors. Both funds have earned Morningstar’s coveted Gold rating and receive high Process Pillar ratings for their methodical, low-cost approaches.

Investment Strategy Differences

The core distinction between VYM and VIG lies in their investment philosophies: current income versus dividend growth.

VYM: High Dividend Yield Strategy

VYM employs a yield-focused approach, starting with the FTSE All-World Index universe of large- and mid-cap U.S. stocks. The fund ranks these companies by their forecasted dividend yield over the next 12 months and selects the top half—those with higher-than-average yields. This forward-looking methodology helps identify companies positioned to pay attractive dividends going forward, not just those with high historical yields.

The strategy appeals to investors who prioritize immediate income. If you’re a retiree needing cash flow to cover living expenses, or if you’re building an income-generating portfolio, VYM’s higher yield provides more dollars in your pocket each quarter. The fund doesn’t require companies to have increased dividends consistently, focusing instead on current payout levels.

One important note: VYM uses market-capitalization weighting, which means larger companies receive proportionally larger allocations. This approach prevents the fund from overconcentrating in small, risky high-yielders that might cut dividends. According to analysis from Morningstar, this market-cap weighting naturally reduces exposure to deteriorating stocks, as falling share prices automatically decrease a company’s weight in the portfolio.

VIG: Dividend Growth Strategy

VIG takes a quality-over-yield approach, requiring companies to have raised their dividends for at least 10 consecutive years before consideration. This stringent criterion ensures that only financially healthy companies with sustainable business models make it into the fund. Companies that have paid growing dividends through various economic cycles—including recessions, bear markets, and periods of high inflation—demonstrate operational resilience.

Crucially, VIG excludes the top 25% highest-yielding stocks from its eligible universe. This filtering eliminates potential yield traps—companies whose stock prices have fallen dramatically, mechanically pushing yields to unsustainable levels. By focusing on moderate yields with proven growth trajectories, VIG pursues total return (capital appreciation plus dividends) rather than maximum current income.

The fund also employs market-cap weighting with a 4% maximum position limit per stock, enhancing diversification. This structure results in a portfolio that closely resembles the broader market’s sector allocation, helping limit tracking error while maintaining dividend growth characteristics.

The Fundamental Tradeoff

As noted by legendary investor John Burr Williams, “The stockholder wants both income and appreciation, but in general, the more he gets of one, the less he realizes of the other.” This principle perfectly captures the VYM versus VIG decision. VYM delivers higher immediate income but lower total return potential. VIG offers lower current income but stronger capital appreciation and growing dividend streams over time.

Historical Performance Comparison

Performance data reveals clear differences between these strategies over various time periods.

Long-Term Returns (10+ Years)

According to data from ETF.com and multiple performance tracking sources, VIG has delivered superior returns over the long term. Since inception, VIG has generated approximately 13.1-13.3% annualized returns compared to VYM’s 11.3-11.5%. Over a 10-year period, this difference is substantial—a $10,000 investment in VIG in 2015 would have grown to approximately $34,300 by 2025, while the same investment in VYM would have reached about $29,200.

This outperformance stems from VIG’s exposure to higher-quality, faster-growing companies. While VYM pays more current income, VIG’s holdings have delivered better price appreciation, more than offsetting the lower yield.

Recent Performance

In 2024-2025, performance has been more competitive. Year-to-date returns show both funds delivering 13-17% returns depending on the measurement period, with VYM occasionally edging out VIG slightly. This narrowing performance gap reflects market conditions where value-oriented stocks (more prevalent in VYM) have held up well during economic uncertainty and tariff concerns.

Bear Market Resilience

Both funds have demonstrated defensive characteristics during market downturns. However, VIG has historically shown lower maximum drawdowns. Since inception, VIG’s worst drawdown was approximately -46.8% (during the 2008 financial crisis), compared to VYM’s -57.0%. While both experienced significant declines, VIG’s focus on quality companies with sustainable dividends provided somewhat better downside protection.

During the past decade, VIG delivered similar returns to the large-blend category average but with 12% lower volatility. Its Sharpe ratio—a measure of risk-adjusted returns—beat the category average, indicating better returns per unit of risk taken.

Dividend Reinvestment Impact

The performance figures above assume dividend reinvestment. This is crucial for understanding total returns. Without reinvesting dividends, VYM’s higher yield would produce more cash in hand, but total portfolio value would lag even further behind VIG. The power of compounding through reinvestment favors dividend growth strategies over time, as each dividend purchases more shares that generate additional dividends.

Dividend Yield Analysis

The yield difference between these funds represents the most visible distinction for income-focused investors.

Current Yield Comparison

As of late 2025, VYM offers a trailing 12-month yield of approximately 2.4-2.5%, while VIG yields about 1.6-1.8%. That’s roughly a 0.8 percentage point difference—substantial for income investors. On a $100,000 investment, VYM would generate approximately $2,400 annually versus $1,700 from VIG, a difference of $700 in annual income.

For retirees depending on portfolio income or investors seeking to maximize cash flow, this yield differential matters significantly. VYM’s higher yield can help cover living expenses or fund consumption needs without selling shares.

Dividend Growth Rates

While VYM offers higher current income, VIG typically delivers faster dividend growth. Companies in VIG have demonstrated histories of consistently raising dividends, often at rates exceeding inflation. Over time, this dividend growth can close the yield gap for investors who reinvest dividends or hold for extended periods.

Consider a hypothetical example: If VIG’s dividends grow at 7% annually while VYM’s grow at 4%, VIG’s initially lower yield compounds to higher absolute dollar amounts over 15-20 years. This makes VIG potentially better for younger investors with long time horizons who don’t need current income.

Yield Sustainability

VIG’s screening process—requiring 10+ years of dividend increases and excluding ultra-high yielders—creates a more sustainable yield profile. Companies in VIG have proven their ability to maintain and grow dividends through multiple economic cycles. According to research from Optimized Portfolio, Vanguard’s own analysis found that the performance differences between VIG and VYM could be fully explained by their exposure to known equity factors: Value, Quality, and Low Volatility.

VYM’s higher yield comes with incrementally higher risk of dividend cuts during severe downturns, as the fund includes some companies without proven dividend growth track records. However, the market-cap weighting and broad diversification mitigate this risk considerably.

Portfolio Holdings and Sector Allocation

The different screening criteria create notably different portfolio compositions, particularly in sector weights.

VIG Sector Breakdown

VIG maintains relatively balanced sector exposure that closely resembles the broader market. Major sector allocations typically include:

• Information Technology: 20-25% – Companies like Microsoft, Apple, Accenture, and Broadcom that combine technology leadership with growing dividends
• Financials: 15-18% – Major banks, insurance companies, and asset managers with consistent dividend growth
• Healthcare: 12-15% – Pharmaceutical and medical device companies like Johnson & Johnson, AbbVie, and UnitedHealth Group
• Consumer Staples: 10-13% – Procter & Gamble, Coca-Cola, PepsiCo, and other everyday product makers
• Industrials: 10-12% – Manufacturing and distribution companies with stable cash flows

The technology overweight is noteworthy. While tech stocks historically paid minimal or no dividends, many mature technology companies now return substantial cash to shareholders through growing dividends. This exposure provides VIG with growth potential but also creates vulnerability if the technology sector experiences a prolonged downturn.

VYM Sector Breakdown

VYM’s yield-focused approach results in heavier weightings toward traditionally high-yielding sectors:

• Financials: 20-23% – Banks and financial services companies that distribute significant portions of earnings as dividends
• Healthcare: 13-16% – Similar to VIG but with potentially different individual stock selections
• Consumer Staples: 11-14% – Overlaps significantly with VIG in this defensive sector
• Energy: 8-11% – Oil and gas companies offering historically high yields, though subject to commodity price volatility
• Utilities: 5-8% – Regulated utilities providing stable, high dividends
• Technology: Lower weighting than VIG, as many tech giants don’t offer yields high enough to qualify

VYM’s sector allocation reflects its income focus. Financials, energy, and utilities naturally produce higher yields due to their business models and capital requirements. This creates a more value-oriented portfolio compared to VIG’s growth-tilt.

Top Holdings Comparison

Despite different strategies, both funds share many top holdings, reflecting the dominance of mega-cap companies in market-cap weighted indexes. Companies like JPMorgan Chase, Procter & Gamble, Johnson & Johnson, and ExxonMobil often appear in both portfolios. However, the weighting differences and the inclusion/exclusion of certain stocks create meaningful performance variations.

VIG’s top 10 holdings typically represent 30-40% of the portfolio, while VYM’s concentration is similar. Neither fund is excessively concentrated in its largest positions, providing reasonable diversification across holdings.

Fees, Liquidity, and Trading Considerations

Both funds exemplify Vanguard’s commitment to low-cost investing.

Expense Ratios

VIG charges a 0.05% expense ratio, while VYM charges 0.06%. On a $10,000 investment, you’d pay $5 annually for VIG or $6 for VYM—essentially negligible. These are among the lowest expense ratios in the dividend ETF space, far below the 0.3-0.9% typical of actively managed funds. Over decades, these minimal fees allow more of your money to compound rather than being consumed by expenses.

Assets Under Management and Liquidity

VYM holds approximately $75 billion in assets, while VIG manages about $115 billion as of late 2025. Both are highly liquid with average daily trading volumes exceeding millions of shares. This liquidity ensures tight bid-ask spreads and minimal trading costs for investors buying or selling shares.

The high assets under management also indicate institutional acceptance and widespread usage. Large AUM typically correlates with better economies of scale, allowing the fund to minimize tracking error and maintain low costs.

Tax Efficiency

Both ETFs are structured for tax efficiency through their use of in-kind creation and redemption processes. However, VIG’s lower yield means less annual taxable dividend income in non-retirement accounts. For investors in high tax brackets holding these funds in taxable accounts, VIG’s lower distributions result in less immediate tax burden, allowing more assets to compound tax-deferred through unrealized capital gains.

In tax-advantaged accounts like IRAs or 401(k)s, this distinction disappears, as neither dividends nor capital gains are taxed until withdrawal.

Risk and Volatility Comparison

Understanding the risk characteristics helps match each fund to appropriate investor profiles.

Volatility Metrics

According to data from PortfoliosLab, VIG demonstrates slightly lower volatility than VYM. Recent measurements show VIG with volatility around 2.3-3.0%, compared to VYM’s 2.4-3.3%. While these differences are modest, they indicate that VIG’s quality-focused portfolio experiences marginally smoother price movements.

VIG’s beta (sensitivity to market movements) is approximately 0.82, while VYM’s beta sits around 0.78. Both have betas below 1.0, suggesting they’re less volatile than the overall market—a characteristic common to dividend-focused strategies that emphasize stable, mature companies.

Sharpe Ratio Analysis

The Sharpe ratio measures risk-adjusted returns—how much return you receive per unit of risk taken. Historical Sharpe ratios for both funds are competitive and relatively similar, though VIG has occasionally shown a slight edge. Recent data shows VIG with a Sharpe ratio around 0.64-0.89 compared to VYM’s 0.65-1.01, depending on the measurement period.

These metrics indicate both funds deliver reasonable returns relative to their volatility. Neither is exceptionally risky nor exceptionally rewarding—they occupy the middle ground of dividend-focused, large-cap equity strategies.

Correlation and Diversification

VIG and VYM exhibit high correlation (approximately 0.93), meaning they tend to move in the same direction with similar magnitude. This high correlation reflects their shared focus on large-cap U.S. dividend stocks. While their sector weightings differ, the overlap in holdings and similar market-cap weighting methodologies create parallel performance patterns.

For portfolio construction, this high correlation means owning both funds provides limited diversification benefit. Investors seeking dividend exposure would typically choose one or the other based on their income needs and time horizon, rather than holding both.

Which ETF Should You Choose?

The choice between VYM and VIG depends entirely on your investment objectives, time horizon, and income needs.

Choose VYM If You…

• Need current income: Retirees or investors who depend on portfolio income for living expenses benefit from VYM’s higher yield
• Prefer value-oriented exposure: VYM’s tilt toward financials, energy, and utilities provides more traditional value characteristics
• Want maximum cash flow now: The 0.8 percentage point yield advantage produces meaningfully more income on large portfolios
• Expect lower volatility: VYM’s lower beta (0.78) suggests it may hold up slightly better during market stress, though differences are modest
• Have a shorter time horizon: If you need portfolio income within the next 5-10 years, VYM’s higher current yield is immediately beneficial

Choose VIG If You…

• Prioritize total return: VIG’s superior long-term performance (13.1% vs 11.3% annualized) compounds significantly over decades
• Don’t need current income: Younger investors or those with other income sources can defer taxes and focus on growth
• Value dividend sustainability: VIG’s 10-year dividend growth requirement and exclusion of ultra-high yielders reduces dividend cut risk
• Want technology exposure: VIG’s 20-25% technology weighting captures dividend growth from mature tech companies
• Have a long time horizon: For investors with 15+ years until needing portfolio income, VIG’s growing dividends and price appreciation should outpace VYM
• Prefer tax efficiency: Lower dividend distributions mean less current taxable income in non-retirement accounts

The Hybrid Approach

Some investors split their dividend allocation between both funds—perhaps 60% VIG for growth and 40% VYM for income. This balanced approach captures dividend growth potential while generating reasonable current income. However, given the high correlation, this strategy provides limited diversification benefit beyond what either fund offers individually.

Market Conditions Matter

Recent analysis from The Motley Fool suggests that market conditions can temporarily favor one fund over the other. During growth-oriented bull markets, VIG’s technology exposure and quality focus tend to outperform. During economic uncertainty or bear markets, VYM’s value orientation and defensive sectors may provide better relative returns. However, attempting to time these shifts is difficult—most investors benefit from choosing the fund aligned with their long-term objectives and holding through market cycles.

Alternative Dividend ETFs to Consider

While VYM and VIG are excellent choices, other dividend ETFs might better suit specific situations.

SCHD (Schwab U.S. Dividend Equity ETF)

SCHD has gained substantial popularity for its quality-focused dividend strategy. It requires companies to have paid dividends for at least 10 consecutive years (like VIG) but also screens for financial strength metrics including return on equity, dividend growth rate, and payout ratio. SCHD‘s yield (around 3.4-3.6%) falls between VYM and VIG, and its performance has been competitive. The 0.06% expense ratio matches VYM.

DGRO (iShares Core Dividend Growth ETF)

DGRO follows a similar strategy to VIG but requires only 5 consecutive years of dividend growth instead of 10. This lower hurdle results in a broader universe of 400+ holdings and a slightly higher yield than VIG. With a 0.08% expense ratio, it remains very cost-effective.

VTI or VOO (Total Market / S&P 500 Index Funds)

For investors not specifically focused on dividends, consider whether you need a dividend-specific fund at all. Total market funds like VTI or S&P 500 funds like VOO provide exposure to dividend payers alongside growth stocks, offering better sector diversification and historically strong returns. These funds yield around 1.3-1.5%—less than VYM but comparable to VIG—while providing full market exposure.

International Dividend Options

VYMI (Vanguard International High Dividend Yield ETF) or VIGI (Vanguard International Dividend Appreciation ETF) provide international dividend exposure for investors seeking geographic diversification beyond U.S. stocks.

Frequently Asked Questions

This article is for educational purposes only and does not constitute investment advice. Past performance does not guarantee future results. Investors should conduct their own research and consider consulting with a financial advisor before making investment decisions. ETF holdings and performance data are subject to change.