The Dividend ETF I'd Buy Today Instead of VYM
Written by David Dierking for The Motley Fool -> The Vanguard High Dividend Yield ETF holds more than 600 stocks and isn't focused enough to provide a true high yield. The Schwab U.S. Dividend Equity ETF targets dividend growth, balance sheet quality, and yield in its selection
The Vanguard High Dividend Yield ETF holds more than 600 stocks and isn't focused enough to provide a true high yield.
The Schwab U.S. Dividend Equity ETF targets dividend growth, balance sheet quality, and yield in its selection process.
It has produced better results and, more importantly, does a better job of picking stocks for its portfolio.
The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) is very simple in its construction. It starts with a U.S. large-cap stock universe, picks the top half based on forecasted dividend yield, and weights them by market cap.
It does its job reasonably well enough. Its 2.2% yield is more than double that of the Vanguard S&P 500 ETF (NYSEMKT: VOO) . But it's also only average within the high yield category, and the fact that it owns more than 600 stocks means it's rather bland and unfocused.
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Can I offer you a dividend ETF with a 3.3% yield, a better quality screen, and more consideration of a company's dividend growth history? If that sounds more appealing, the Schwab U.S. Dividend Equity ETF (NYSEMKT: SCHD) belongs in your portfolio.
This ETF tracks the Dow Jones U.S. Dividend 100 Index . It searches for companies with 10 or more consecutive years of dividend payments. Qualifying stocks then get assessed on four fundamental metrics: cash flow-to-debt, return on equity (ROE), dividend yield, and five-year dividend growth rate. The top 100 stocks with the best combination of these measures make the portfolio.
