Key Takeaways
- SCHD uses a quality screen (cash flow, ROE, yield, dividend growth) while VYM screens primarily on yield
- SCHD has historically delivered higher total returns thanks to its quality tilt
- VYM offers broader diversification with over 400 holdings versus SCHD's roughly 100
- Both are excellent core holdings — SCHD for quality-focused investors, VYM for maximum diversification
Schwab U.S. Dividend Equity ETF (SCHD) and Vanguard High Dividend Yield ETF (VYM) are two of the most popular dividend ETFs in the world, with combined assets exceeding $100 billion. Both target high-yielding U.S. stocks, but they use very different methodologies to select and weight their holdings. Understanding these differences helps you choose the right one — or decide to own both — for your dividend portfolio.
This head-to-head comparison examines their strategies, holdings, performance, costs, and ideal use cases. If you are also considering dividend growth ETFs, see our companion article on VIG vs. DGRO.
Investment Strategy
SCHD tracks the Dow Jones U.S. Dividend 100 Index. It starts with dividend-paying stocks with at least 10 consecutive years of payments, then applies a quality screen based on four factors: free cash flow to total debt, return on equity, dividend yield, and 5-year dividend growth rate. The top 100 stocks that pass all screens are included, equally weighted by a composite quality score. This methodology gives SCHD a distinct quality tilt that filters out yield traps and financially weak companies.
VYM tracks the FTSE High Dividend Yield Index. It simply ranks all U.S. stocks by forward dividend yield and includes those in the top half, excluding REITs. The result is a much broader portfolio of over 400 stocks weighted by market capitalization. VYM's approach is simpler and more inclusive, but it does not screen for quality — a high-yielding stock gets in regardless of whether its dividend is sustainable or its financials are deteriorating.
Holdings and Sector Exposure
SCHD holds approximately 100 stocks, with top positions typically including Broadcom (AVGO), AbbVie (ABBV), Home Depot (HD), Coca-Cola (KO), and PepsiCo (PEP). The fund is heavily weighted toward financials, healthcare, consumer staples, and industrials. Notably, SCHD excludes REITs due to its index methodology.
VYM holds over 400 stocks, with top positions including JPMorgan Chase (JPM), Broadcom (AVGO), Exxon Mobil (XOM), and Johnson & Johnson (JNJ). VYM has broader sector coverage and heavier financials and energy exposure. Because it is market-cap weighted, the largest companies dominate the portfolio. VYM also excludes REITs.
Performance Comparison
Since SCHD's inception in 2011, it has generally outperformed VYM in total return. SCHD's quality screen tends to select companies with stronger earnings growth, which drives both dividend increases and share price appreciation. Over the 10-year period through 2023, SCHD delivered an average annual total return of approximately 11-12% versus 9-10% for VYM. The difference compounds significantly over time.
In terms of dividend growth, SCHD also leads. Its 5-year dividend growth rate has typically been in the 10-12% range, while VYM's has been closer to 5-7%. This means SCHD investors see their income growing faster year over year. However, VYM often offers a slightly higher current yield — typically 0.2% to 0.5% more — because its methodology focuses purely on yield rather than quality. For investors who need maximum current income today, VYM has a marginal edge.
Costs and Structure
Both funds are remarkably inexpensive. SCHD charges an expense ratio of 0.06%. VYM charges 0.06% as well. At these rock-bottom costs, expenses are essentially a non-factor in the comparison. Both are highly liquid with tight bid-ask spreads, making them easy to trade in any size.
Which Should You Choose?
Choose SCHD if: You want a quality-screened dividend portfolio with stronger total return potential, faster dividend growth, and more concentrated holdings. SCHD is the better choice for investors who value quality over breadth and who are willing to accept a slightly lower starting yield in exchange for superior income growth.
Choose VYM if: You want maximum diversification across 400+ dividend stocks, slightly higher current yield, and exposure to a broader cross-section of the market. VYM is the better choice for investors who prioritize diversification and simplicity, or who want a single-fund dividend solution.
Own both if: Many investors hold both SCHD and VYM as complementary positions. SCHD provides the quality core, while VYM fills in sector and stock coverage gaps. Together, they create a robust dividend ETF foundation that can be supplemented with individual stock picks or growth-oriented dividend ETFs like VIG or DGRO.
Frequently Asked Questions
Is SCHD better than VYM?
SCHD has delivered higher total returns and faster dividend growth historically, making it the preferred choice for most long-term investors. However, VYM offers broader diversification and a slightly higher current yield. "Better" depends on whether you prioritize quality and growth (SCHD) or diversification and current income (VYM).
Can I hold both SCHD and VYM?
Absolutely. There is meaningful overlap — perhaps 40-50 holdings appear in both — but enough differentiation to make owning both worthwhile. SCHD's quality screen captures stocks that VYM's yield-only screen might miss, and VYM's breadth captures stocks outside SCHD's top-100 selection.
Do SCHD and VYM include REITs?
No. Both ETFs exclude REITs from their portfolios. If you want REIT exposure in your dividend portfolio, you will need to add individual REITs like Realty Income (O) or a dedicated REIT ETF like VNQ separately.