The names are misleading
VYM is the fund called “High Dividend Yield.” SCHD is the one that has recently paid the higher yield. That inversion is the whole story of these two ETFs, and it comes straight out of how their indexes are written.
VYM tracks the FTSE High Dividend Yield index, which ranks US dividend payers by forecast yield, takes the higher-paying half, and weights them by market capitalization. “Half the market” is a wide net — several hundred companies — and market-cap weighting then pushes the money toward the largest of them, which are rarely the highest yielders. The result is a broad, cheap, large-cap-tilted fund whose yield is dragged toward the market average by its own weighting scheme.
SCHD tracks the Dow Jones U.S. Dividend 100. To be eligible a company needs ten consecutive years of dividends; survivors are then ranked on cash flow to total debt, return on equity, dividend yield and five-year dividend growth. Only about a hundred names make it. The screen is looking for companies that can keep paying, not simply companies paying a lot today — and by filtering out the largest low-yield names it ends up with the higher payout of the two.
What that does to the portfolios
- Concentration. Roughly 100 holdings against several hundred. SCHD's top names carry real weight; VYM's tail is long and thin. Concentration is the price SCHD pays for its screen.
- Sector shape. The quality-and-yield screen keeps steering SCHD toward energy, consumer staples and healthcare, while VYM's market-cap weighting leaves it heavier in financials and large-cap technology. In any given stretch, most of the performance gap between the two is this, not stock picking.
- Cost. Both are cheap enough that fees are not the deciding factor — 0.06% a year for SCHD, 0.04% for VYM.
Sources
Index rules and expense ratios from the fund issuers' own documentation (Schwab Asset Management for SCHD, Vanguard for VYM). Prices and dividend history from Financial Modeling Prep's end-of-day feed.