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VYM and SCHD get compared constantly as dividend ETF options, and for good reason – they solve a similar problem in noticeably different ways. One takes a broad, simple approach. The other applies a stricter quality filter to a smaller list of companies.
This guide explains what VYM actually holds, how its selection process differs from SCHD’s, and which approach tends to fit different types of investors.
What Is VYM?
VYM is the Vanguard High Dividend Yield ETF. It tracks the FTSE High Dividend Yield Index, which includes U.S. companies with a history of paying above-average dividends – excluding REITs, which Vanguard offers separately through its real estate fund lineup.
Unlike SCHD’s roughly 100-company quality screen, VYM’s index includes several hundred companies – a much broader slice of the dividend-paying market. For a full breakdown of what VYM holds and how its screen works, see VYM ETF Explained. For official fund details, see the Vanguard VYM product page.
| Feature | VYM ETF |
|---|---|
| Full name | Vanguard High Dividend Yield ETF |
| Index tracked | FTSE High Dividend Yield Index |
| Holdings | Several hundred companies |
| Expense ratio | 0.04% |
| Issuer | Vanguard |
| Selection basis | Above-average dividend yield, broad inclusion |
| Typical portfolio role | Broad dividend income allocation |
Fund holdings, yields, and the expense ratio can change over time. Verify current figures on the fund sponsor’s website before investing.
How VYM’s Selection Process Differs From SCHD’s
This is the most important distinction between the two funds, and it explains nearly every other difference in this comparison.
VYM’s index selects companies primarily based on dividend yield – it casts a wide net, including any company with an above-average yield, regardless of how strong that company’s underlying financial quality is. This is why VYM holds several hundred companies rather than a tightly curated list.
SCHD’s index applies a much stricter filter – companies need a minimum 10-year dividend payment history and pass a composite quality score based on cash flow to debt, return on equity, dividend yield, and dividend growth rate before being included. That screen narrows SCHD down to roughly 100 companies. For more on how that process works, see our guide on SCHD explained.
That doesn’t mean VYM ignores basic index rules or blindly buys any stock with a high yield. The point is that VYM starts from a broader high-dividend-yield universe, while SCHD applies a more concentrated quality and dividend-growth screen.
Neither approach is objectively better – they’re built around different philosophies. VYM prioritizes breadth and simplicity. SCHD prioritizes a narrower definition of dividend quality.
VYM vs. SCHD: Key Differences
| VYM | SCHD | |
|---|---|---|
| Index Tracked | FTSE High Dividend Yield | Dow Jones U.S. Dividend 100 |
| Number of Holdings | Several hundred | ~100 |
| Expense Ratio | 0.04% | 0.06% |
| Selection Filter | Yield-based, broad inclusion | Quality and dividend-growth screen |
| Diversification | Broader | More concentrated |
| Rebalancing Frequency | Annual | Annual reconstitution, quarterly review |
| Best Used For | Broad high-dividend exposure | Quality-focused dividend-growth tilt |
Yields and holdings fluctuate over time. Verify current figures on each fund sponsor’s website before investing.
Yield and Diversification: The Practical Tradeoff
VYM’s broader holding count – several hundred companies versus SCHD’s roughly 100 – means any single company’s performance has less impact on VYM’s overall returns. That broader diversification is one of VYM’s main practical advantages.
In exchange, VYM doesn’t apply the same dividend-growth and financial-quality screen that SCHD does, which means VYM’s holdings can include companies with a less consistent dividend growth track record, simply because they currently offer an above-average yield. This is a meaningful philosophical difference: VYM asks “does this stock pay an above-average dividend right now?” while SCHD asks “has this stock demonstrated dividend quality and growth over time?”
Neither question is wrong to ask. They simply produce different portfolios.
Things to Be Cautious About With VYM
- Sector concentration: Like most dividend-focused funds, VYM tends to lean toward financials, consumer staples, healthcare, and energy, and away from high-growth technology companies that pay little or no dividend.
- Yield-based selection has tradeoffs: Including companies primarily because of current yield – rather than a quality and growth screen – means VYM’s holdings haven’t all been filtered for the same dividend reliability standard that SCHD applies.
- Still equity risk: VYM holds stocks, not bonds. Its price can decline significantly during a broad market downturn, regardless of the dividend income the underlying companies continue paying.
Who Should Consider VYM?
- Investors who want maximum diversification within a dividend-focused fund
- Investors who prefer a simpler, broader selection methodology over a stricter quality screen
- Anyone prioritizing the lowest possible cost among dividend ETF options
Investors who specifically want a dividend-growth and financial-quality screen, even at the cost of broader diversification, may prefer SCHD instead.
Where VYM Fits in a Portfolio
Like other dividend-focused ETFs, VYM is generally used as a satellite or income tilt alongside a broad core holding rather than as a complete portfolio on its own. A common structure pairs a total-market or S&P 500 fund as the core, with a smaller VYM allocation added for additional income. Both VYM (0.04%) and SCHD (0.06%) are low-cost options – to see how these fees compare to the broader ETF landscape, see ETF Expense Ratios Explained. For a dividend growth approach that prioritizes quality over current yield, see VIG ETF – the third major dividend ETF in this cluster, or see SCHD vs. VIG for a direct comparison of yield, sector exposure, and taxes. For a dividend growth ETF with broader diversification than SCHD, see DGRO ETF Explained. For a direct comparison of SCHD and DGRO on yield, holdings, and sector exposure, see SCHD vs. DGRO.
VYM can be held in a taxable brokerage account, a Roth IRA, or a Traditional IRA. Because its dividends are generally taxed in the year they’re paid in a taxable account, some investors prefer to hold higher-yielding funds like VYM inside tax-advantaged accounts when possible. Higher-yielding ETFs also create more tax drag in a taxable account than lower-yielding growth funds – see ETF Taxes Explained for the full breakdown.
For a broader comparison of dividend ETF options beyond just VYM and SCHD, see our guide on best dividend ETFs for passive income.
The Bottom Line
VYM and SCHD both solve the same problem – generating dividend income beyond what a broad market fund typically provides – but through different philosophies. VYM casts a wider net based primarily on yield, offering broader diversification and a slightly lower expense ratio. SCHD applies a stricter quality and growth screen to a smaller, more concentrated list of companies.
Neither is automatically the better choice. For most beginners, either fund works best as a complement to a broad core holding rather than a replacement for one – the choice between them comes down to whether you value broader diversification or a stricter quality filter more.
READY TO KEEP BUILDING?
To understand how SCHD’s quality screen works in detail before comparing it further to VYM, see our guide on SCHD explained.
If you’re deciding how a dividend-focused fund fits next to a broad core holding, start with our guide to VOO vs. VTI to understand the core options first.