vym vs vig

VYM vs VIG: Compare And Know The Differences

VIG and VYM are two very popular Exchange Traded Funds (ETFs) offered by The Vanguard Group Inc – a registered American Investment Advisor company. The company bags the title of being the largest Mutual funds and second largest Exchange Traded Funds (ETFs) provider in the world. Additionally the company offers many more services like brokerage, financial planning, asset management, trust services, annuities- fixed and variable both, etc. The Vanguard Group Inc dominates corporate America by being one of the Big Three Index Fund Managers along with BlackRock and StateStreet. Let’s see the detailed comparision of VYM vs VIG.

Understanding Vanguard Exchange-Traded Funds (ETFs)

Vanguard’s ETFs are currently traded on the New York Stock Exchange (NYSE) and Nasdaq. Vanguard Index Participation Receipts were their previous name (VIPERS). Vanguard’s ETFs aim to provide intraday trading flexibility by closely tracking their underlying indices. Vanguard has proved its dominance and longstanding leadership in the American ETF space by developing such low cost funds.

These Exchange Traded Funds (ETFs) are traded like any other share. ETFs generally consist of thousands of stocks and bonds in a single fund thereby providing more flexibility for better portfolios. ETFs have benefits of an Index fund at the same time providing more control for the individual investor because their indices cover both individual and domestic sectors. Investing in a sector-based ETF allows investors to target a certain segment of the market without the risk of picking particular firms and then investing in them.

The ETFs can be classified as large, mid-cap or small-cap basis the size of the target company. They can also be categorized as Growth, Value and Blend ETFs on the basis of the performance of the companies they invest into. Growth ETFs Invest in stocks yielding above average dividends growth rates while Value ETFs look to invest in companies with lower than average growth rates and blend, as the name suggests, is a combination of Growth and Value ETFs.

What are VYM and VIG?

VYM  stands for Vanguard High Dividend Yield ETF and comprises more-than-average dividend yielding stocks, excluding Real Estate Investments Trusts (REITs). 

VIG means Vanguard Dividend Appreciation ETF and consists of dividend growth stocks of companies which have seen an increasing dividend for over a minimum of 10 consecutive years in the past, excluding Real Estate Investments Trusts (REITs). VIG seeks to outperform the Nasdaq US Dividend Achievers Select Index.

Both VIG and VYM are very popular dividend focused index funds which hold stocks with appreciating dividends, offered by The Vanguard Group INC. Both of these offerings are commonly used by the investors who want to earn returns on their investments through dividend payout without requiring to sell their shares.

VYM vs. VIG

Although both VIG and VYM have a same low expense ratio and focus on high dividend paying stock, their approach in doing so is quite different. Based on the investment goals and the time horizon, an investor can choose one of these two ETFs. Despite the fact that there is a significant difference between the two, dividend investors frequently mix them up and use them indistinguishably.

The table below compares the basic information of both the funds. 

VYMVIG
Type of FundExchange Traded Fund (ETF) Exchange Traded Fund (ETF
Category Large ValueLarge Value
Expense Ratio (Management expenses)0.06%0.06%
Minimum investment requiredPrice of 1 single sharePrice of 1 single share
Number of stocks419184
Dividend given3.39%1.81%

It is quite apparent from the above table that there are many similarities in both the funds like Exchange Traded Funds (ETFs), categorised as large value ETFs, minimum investment required is equivalent to the price of single share and have the same management expenditure of 0.06%. Only the number of stocks and the dividend yield are points of difference between the two and that is mainly due to the financial objective they seek to attain. 

Since VYM pays out a high dividend to its investors “now” rather than in the future, it has a higher dividend yield whereas VIG pays out increasing dividends to investors by holding stocks with appreciating dividend payouts for over a time period of at least 10 continuous years. Therefore, VIG follows a comparatively stricter  approach of holding less number of stocks and removing stocks that may be risky for lowering down the dividend payments.

Difference Between VYM vs VIG in Composition

In essence, there is a variation in the sectoral composition of the two funds, which has an impact on overall performance. The table below shows the sectoral portfolio composition of both ETFs.

VYMVIG
Basic Materials3.6%3.9%
Consumer Goods14.2%10.9%
Consumer services9.6%19.9%
Financial Services18.8%11.8%
Healthcare12.3%12.0%
Industry 8.3%26.9%
Oil and Gas9.0%0.0%
Technology10.9%8.8%
Telecommunications4.8%0.1%
Utilities8.5%5.7%

Striking difference between the two ETFs’ composition is that while VIG holds more stocks in consumer services and the industrial sector, VYM focuses more on financial and oil and gas sectors’ stocks. This can be better understood if the difference in the strategy behind the two ETFs is understood. Historic data shows that industrial and consumer services sectors have a trend of increasing dividends, VYM’s focus on the financial and oil and gas sector can be explained by the high dividend yields without consistent increase in dividend payouts.  

Difference in Valuation and Stock Performance

vym vs vig

Source: optimizedportfolio.com

According to the recent data it is apparent that VIG has performed slightly better at 12% gain and VYM is not lagging far behind standing at 9% gain. Considering the valuations also, it is quite interesting to note that the stocks in the portfolio of VYM (High Dividend Yield) ETF are cheaper earning as compared to VIG’s (Dividend Appreciation) holdings. The fact that VYM has a less risk potential within its portfolio can be explained by recent figures – High Dividend Yield has a trailing multiple of 18, whilst Dividend Appreciation has a trailing multiple of 23.

Income from Dividend: VYM vs VIG

By delivering higher dividends to its stockholders than VIG, VYM lives up to its name. The SEC-defined dividend yield for VYM (High Dividend Yield) is currently 3.1%, compared to merely 2% for its sibling ETF. 

Actually the VIG ETF should yield higher dividend payouts, but that isn’t the case. Between 2014 and 2017, the total annual dividends of VYM increased by more than 25% in comparison to that of VIG which witnessed a 21% increase in payouts over the same time period. This is in line with longer-term trends, therefore High Dividend Yield (VYM) clearly wins on this criterion.

Potential Risk and Growth Difference: VYM vs VIG

On comparing the holdings of the two Vanguard ETFs, a significant difference is noted. Remarkably technology stocks have grabbed the lead in High Dividend Yield, which has undoubtedly aided performance and given the technology sector its dominance in recent years.

Diverse industry exposure across the economy is apparent with allocations to six different sectors, including technology, financials, healthcare, industrials, consumer goods, and energy by 10% or more. Crucial businesses like banking and oil and gas exploration and production have shown signs of recovery and growth, and the High Dividend Yield ETF has seen a rise in share price to match dividend payments, resulting in an overall formidable combination for all investors.

On the other hand VIG ETFs bets are significantly more concentrated. Industrial stocks account for about one-third of the portfolio, with consumer goods and services companies accounting for another 30%. The VIG ETF’s exposure to technology stocks is substantially lower, and currently has negligible oil and gas holdings.

vym vs vig

Source: mrmarvinallen.com

Also Read: Types of Stocks You Need to Know

Conclusion

Based on the data, especially the annual returns. It’s clear that VIG (Vanguard Dividend Appreciation) is a superior investment than VYM. Because of its consistent dividend growth over time. As a result, VIG is a solid long-term investment option for those with a long investment horizon. Over the last few years, the top ten holdings have significantly raised their dividends.

This pattern is projected to continue, rewarding individuals who are patient enough to persist with their investments through uncertain economic times. VIG’s stock portfolio is made up of high-quality stocks that have the potential to increase their dividends in the future. It can be considered for a well-balanced and cost-effective investment in the portfolio.

VYM (Vanguard High Dividend Yield) is a good choice for investors searching for big dividend payments during the year or in the foreseeable future, with cheaper stocks and equal or higher growth qualities. Now, the VYM ETF provides a steady dividend income. In addition, attractive dividend growth can be expected to boost dividend income in the future. With its broad diversified basket of blue-chip dividend-paying companies, the fund is an ideal opportunity to take part in the gains from the US stock market.

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