How to Compare Dividend ETFs

Two dividend ETFs can have similar names, similar yields and similar logos, and still be built in completely different ways. Comparing them properly takes about fifteen minutes and a short checklist. Here it is.

The seven checks

1. Read the recipe

Every index fund publishes its methodology. Look for: how long a company must have paid or raised its dividend, what quality tests it must pass, how holdings are weighted (by size, by yield, equally) and how often the fund rebalances. Five minutes here tells you whether you’re looking at a high yield fund, a growth fund or something in between, as described in High Yield vs Dividend Growth ETFs.

2. Cost

Expense ratios on the big dividend ETFs range from under 0.1% to around 0.4%. Option income funds charge more, often 0.35% to 1%. Between two similar funds, a fee gap of half a percent is a lot: it comes out every year, good or bad, and compounds. You saw how much in What Is an ETF?.

3. Read the yield correctly

Make sure you’re comparing the same kind of yield for both funds. One site’s “yield” might be the trailing twelve month figure, another’s the SEC yield, another’s the latest payment multiplied up. For funds with uneven payouts they can differ by several percentage points. SEC Yield, Distribution Rate and Trailing Yield explains each one.

4. Total return

Compare total returns with dividends reinvested over several periods. One great year can flatter a fund. Five and ten year figures are more telling, and so is how far each fund fell in bad years like 2020 and 2022. Lower income with a higher total return usually wins, as you saw in Total Return: Why the Dividend Is Only Half the Story.

5. Dividend growth

Look at the fund’s distribution history. Has the yearly total grown? By how much? A fund yielding 3.5% whose payouts grew 10% a year is a very different proposition from one yielding 3.5% with flat payouts. Dividend Duel shows the full distribution history on each fund’s page.

6. Concentration

Check the number of holdings, the weight of the top ten and the sector breakdown. A fund with 80% of its money in three sectors will behave very differently from the broad market, in both directions. Also check for overlap with funds you already own. Two dividend ETFs that share most of their top holdings won’t diversify each other much.

7. Size, trading costs and tax

Very small funds (under about $50 million) can close. Thinly traded funds can have wide gaps between buying and selling prices. And in a taxable account, a fund whose distributions are mostly qualified dividends will leave you more after tax than one paying ordinary income, a topic covered in How Dividends Are Taxed.

A worked comparison

Here are two of the most popular dividend ETFs side by side, live:

Neither is “better” in the abstract. If you want more income and accept more concentration and occasional big reshuffles, SCHD fits. If you want broad diversification with a bit less income, VYM fits. Plenty of investors own both.

Small differences, long periods

Small gaps in yield and growth add up over decades. Use the sliders to set up two funds you’re weighing, for example a 3.5% yielder whose price grows 5% a year against a 2.5% yielder growing 7%.