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

Vanguard does simple, low-cost investing very well. While best known for its broad-market index funds, Vanguard also spins up a couple of our favorite dividend exchange-traded funds: Vanguard High Dividend Yield ETF VYM and Vanguard Dividend Appreciation ETF VIG. These ETFs effectively harness dividends to gain an edge while controlling the inherent risks of dividend investing. And in typical Vanguard fashion, they do so while charging fees of just 0.06% and 0.05%, respectively.

Two Approaches to Vanguard’s Dividend ETFs

Dividend strategies tend to follow one of two distinct strategies (or a blend of the two):

• High-dividend-yield strategies target companies with high payouts to maximize current income.
• Dividend-growth strategies select firms with long histories of increasing dividend payouts.

High-Dividend-Yield ETFs

Income-focused ETFs target high-yielding companies, resulting in greater distributed income than the broader market. However, high-yielding stocks are less likely to increase their dividends over time, instead prioritizing current income. These firms tend to be mature businesses with steady operations and reliable profits.

But any quantitative measure has its blind spots. Dividend yield is typically calculated by dividing the past year’s dividend payments by the current stock price. A falling stock price can inflate the yield on past dividends. For example, if a stock priced at $10 pays a quarterly dividend of $0.10, its trailing 12-month yield would be 4%. If the stock falls to $8 by year-end but maintains the same payout, its trailing 12-month yield rises to 5% even though the cash dividend hasn’t changed.

Companies on the decline can be value traps—a term traditionally relevant to value investors, where investments appear undervalued but are appropriately priced on account of a deteriorating or stagnant business. Dividend ETFs don’t explicitly seek out value stocks. But a high-yield strategy is more likely to capture low-growth companies and stocks whose prices are declining. Value traps are more likely to cut their dividends, and they represent a major risk for dividend-income ETFs.

Dividend-Growth ETFs

Dividend-growth ETFs invest in companies with long histories of raising their dividends. This dual mandate—income and capital appreciation—typically results in lower yields but more reliable future dividends. These portfolios tend to be lined with companies that have durable competitive advantages and strong profitability. Because such stocks often trade at higher valuations, dividend-growth strategies are less tilted toward value than high-yield strategies.

While past performance doesn’t guarantee future results, a long track record of dividend growth improves the odds of continued payouts. However, these strategies often pay higher prices for their holdings, raising the bar for outperformance. That said, they are generally safer strategies with solid long-term potential.

Vanguard’s Advantage With These Strategies

Vanguard follows a simple yet effective plan with Vanguard High Dividend Yield ETF and Vanguard Dividend Appreciation ETF. Both earn Process Pillar ratings of High and Morningstar Medalist Ratings of Gold, despite their different approaches.

Both ETFs use market-cap-weighting, which keeps costs low and naturally reduces exposure to deteriorating stocks. Since market-cap-weighting reduces a stock’s portfolio weight as its price declines, it avoids doubling down on falling companies—a risk in yield-weighted strategies. This approach contributes to higher-quality portfolios and a smoother ride for investors.

Vanguard High Dividend Yield ETF VYM

Vanguard’s flagship income strategy begins with large- and mid-cap US stocks, ranks them by their expected dividend yield over the next 12 months, and selects the top half. It then weights the holdings by market cap.

The approach is simple and repeatable, yet it produces a portfolio with a strong mix of income, value, and profitability. Its sector weightings don’t deviate much from the large-value Morningstar Category average, limiting the risk of large performance divergence. Its broad portfolio of 450 holdings helps dilute the impact of any value traps that may slip in.

Over the past 10 years, Vanguard High Dividend Yield ETF has outpaced its large-value category average with lower volatility and shallower drawdowns.

Vanguard Dividend Appreciation ETF VIG

Vanguard Dividend Appreciation ETF selects companies that have raised their dividends for at least 10 consecutive years. It excludes the highest-yielding names to avoid value traps and improve the likelihood of continued dividend growth. Holdings are then market-cap-weighted, with a 4% cap per stock to enhance diversification.

The result is a high-quality, low-volatility portfolio that avoids chasing yield. Sector allocations generally stay close to those of the broad market, helping limit tracking error.

Over the past decade, Vanguard Dividend Appreciation ETF has matched its large-blend category average return but with 12% lower volatility. Its Sharpe ratio—a measure of risk-adjusted return—beat the category average and even edged out the market index, an impressive feat given the dominance of cap-weighted and growth-oriented strategies in recent years.

Comparing These Vanguard Dividend ETFs

Investors can feel confident holding either Vanguard High Dividend Yield ETF or Vanguard Dividend Appreciation ETF—their combined $140 billion in assets is a testament to their popularity and quality. But choosing between them depends on your investment goals.

Income—Advantage: VYM

Vanguard High Dividend Yield ETF’s trailing 12-month yield of 2.86% exceeds Vanguard Dividend Appreciation ETF’s by 1.07 percentage points. For investors prioritizing short-term income, Vanguard High Dividend Yield ETF is the better choice. Those who don’t need current income may prefer to defer taxes and capture returns as unrealized gains, making yield a decisive factor.

Growth—Advantage: VIG

Vanguard Dividend Appreciation ETF focuses on companies that increase cash dividends through earnings growth. A long record of dividend increases is often a proxy for sustained business success.

From January 2007 to May 2025, Vanguard Dividend Appreciation ETF posted a 9.52% annualized return, outpacing Vanguard High Dividend Yield ETF by 1.15 percentage points on a total return basis.

Price—Advantage: Tie

Both funds are cost-efficient. Vanguard Dividend Appreciation ETF charges just 0.05%, a single basis point less than Vanguard High Dividend Yield ETF—a negligible difference. Investors can rest easy knowing they’ll keep nearly all their returns.

Both ETFs offer compelling, low-cost access to high-quality dividend strategies. The right choice comes down to investor goals—Vanguard High Dividend Yield ETF for those seeking current income, and Vanguard Dividend Appreciation ETF for those prioritizing long-term growth. Either way, investors can count on Vanguard’s disciplined approach and investor-first ethos.