HomeMost PopularComparing SCHD and VIG: Which ETF Offers Better Passive Income?

Comparing SCHD and VIG: Which ETF Offers Better Passive Income?

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Passive income investing simplifies retirement planning by focusing on dependable dividend stocks that cover living expenses and grow payouts over time. This approach eliminates emotional investing and allows investors to take advantage of market downturns. Dividend growth ETFs like Schwab U.S. Dividend Equity (SCHD) and Vanguard Dividend Appreciation Index Fund (VIG) are popular among retirees due to their consistently growing dividends and attractive long-term returns.

Total Return Track Record: SCHD vs VIG

When making investment decisions, investors often look at an ETF’s past performance. While it’s not a guarantee of future results, it provides valuable insights. Both SCHD and VIG have delivered exceptional performance over the past decade, but SCHD has slightly outperformed VIG. Notably, both ETFs have low expense ratios of 0.06%, meaning SCHD’s outperformance is solely based on the performance of its underlying holdings.

Dividend Growth Track Record: SCHD vs VIG

When it comes to dividend growth, SCHD has significantly outpaced VIG over the past decade. SCHD has achieved a compound annual growth rate (CAGR) of 11.32%, while VIG’s CAGR stands at 7.88%. Although VIG’s dividend growth rate has improved in recent years, SCHD remains the superior dividend grower overall.

Dividend Yield: SCHD vs VIG

SCHD offers a higher trailing twelve-month dividend yield of 3.49% compared to VIG’s 1.90%. This, combined with SCHD’s better track record of delivering dividend growth, makes it the clear winner in terms of being the better dividend stock. SCHD’s superior performance can be attributed to its larger exposure to energy and industrials, which typically offer higher dividend yields than technology stocks.

Portfolio Composition: SCHD vs VIG

Assessing an ETF’s current portfolio constituents is crucial in making forward-looking investment decisions. VIG has a higher number of individual holdings (317 compared to SCHD’s 104), but this diversification does not significantly benefit VIG in terms of risk-reward. Both ETFs have similar volatility, as seen in their total return performance during the COVID-19 crash. SCHD’s top 10 positions are more concentrated than VIG’s, but relative to its total positions, SCHD is less concentrated. VIG has significant holdings in mega-cap tech stocks like Microsoft and Apple, while SCHD has a more defensive posturing with exposure to undervalued energy and industrial names.

Investor Takeaway

While both SCHD and VIG are solid dividend growth ETFs, SCHD stands out as the better choice. It offers superior total return and dividend growth performance, a higher dividend yield, and a more defensive portfolio composition. VIG may be suitable for investors seeking exposure to mega-cap tech and dividend growth names, but for those focused on an attractive passive income stream with long-term potential, SCHD is the clear winner.

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