The Schwab US Dividend Equity ETF (NYSEARCA:SCHD | SCHD Price Prediction) has been going through a dry spell for the past couple of years, and many investors have used that opportunity to move into hotter names like the Vanguard Dividend Appreciation Index Fund ETF (NYSEARCA:VIG). The latter carries a smaller dividend yield but has performed far better in terms of total return.
That said, more near-term performance can create a “mirage” and lure you into making a bad investment decision. If you truly want to know if you should SCHD or VIG, the best course of action would be to dig deeper. I’ll be doing just that in this article.
Both VIG and SCHD come with interesting details, and their histories are worth looking into before choosing one over the other. Let’s start with SCHD.
Schwab US Dividend Equity ETF (SCHD)
SCHD is arguably the most reliable vehicle for dividend investing if you aren’t satisfied with a small dividend yield. It yields 3.61%, something that most other dividend ETFs cannot match. Those that do tend to trade sideways and give you very little upside. SCHD has historically shown it can deliver both a 3%+ yield and some upside on top.
Unfortunately, it hasn’t kept up with that historical consensus in recent years. Shareholders have been disappointed by the SCHD delivering almost no capital gains from December 2021 to December 2021. It has only recently started accelerating again, but for some, that’s “too little, too late”.
But is that really the case? Sure, most other dividend ETFs look a lot more appealing when you see that their charts have not flatlined for 4 years. However, when you take reinvested dividends into account, SCHD hasn’t flatlined, even though it has trailed its competitors a little. The ETF has still kept its lead or is neck-and-neck with competitors if you zoom out further. It helps that the expense ratio is low at just 0.06%, or $6 per $10,000.
Vanguard Dividend Appreciation Index Fund ETF (VIG)
Turning the page to VIG, you’d quickly realize that the ETF has done a lot better than SCHD in the past few years. Total return for VIG is 75.1% over the past 5 years, whereas SCHD returned 57.8%. If you factor out dividend reinvestments, it looks even better for VIG.
The difference in performance is thanks to a key difference in their holdings breakdown. The Vanguard Dividend Appreciation Index Fund attributes 28.65% of its portfolio to technology stocks. On the other hand, SCHD’s exposure to the technology sector is just 9.49%. In fact, the top 3 stocks that VIG holds are all tech: Broadcom (NASDAQ:AVGO), Microsoft (NASDAQ:MSFT), and Apple (NASDAQ:AAPL). Not a single top 5 holding of SCHD is tech. This has caused SCHD to miss out on the AI rally.
VIG gives you all this tech exposure and yields 1.58% in dividends, along with a 0.05% expense ratio.
Which ETF Should You Choose? SCHD or VIG?
VIG has performed a lot better, so it should automatically be the winner… right? Disagree. You should invest in a dividend ETF because its holdings have the characteristics of a dividend fund. When it comes to VIG, it is a “dividend ETF” in name only. The yield is too low, and the tech exposure is too high.
In fact, the dividend “appreciation” part gets you a 9.15% annual dividend increase on average over the past 5 years. That’s the same as what the SCHD offers, despite carrying a higher yield.
You’ll simply be adding more tech exposure by buying VIG. Thus, I’d strongly recommend buying SCHD in 2026 instead of VIG, especially if you already hold S&P 500 or Nasdaq-100 ETFs in your portfolio. Many expect the market to start rotating out of expensive tech stocks and back into financials, industrials, and hard assets.
VIG lost ~5% more of its value during the 2022 tech selloff. I expect a worse outcome for VIG if 2026 marks a tech correction. If not, VIG can perform well, but SCHD’s momentum over the past few days is reason enough to pile into it instead.
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