VYM vs VIG

[freedom2022]

I own VYM (Vanguard High Dividend Yield ETF) for a while. I like the dividend and price appreciation. I intend to accumulate more of this stocks.
However, PG recent earning suggest the dividend of most corporations will be slashed in the future.
I come to think VIG (Vanguard Dividend Appreciation Index Fund ETF) is better at this point in time. VIG yields less dividend but appreciate more.
Any thoughts?

 

[thepalmersinking]

I own VYM (Vanguard High Dividend Yield ETF) for a while. I like the dividend and price appreciation. I intend to accumulate more of this stocks.

However, PG recent earning suggest the dividend of most corporations will be slashed in the future.

I come to think VIG (Vanguard Dividend Appreciation Index Fund ETF) is better at this point in time. VIG yields less dividend but appreciate more.

Any thoughts?

vYm is my largest holding so i am biased. Question for you is do you need income in the next downturn without selling shares of VIG?

 

[VanWinkle]

I always look at high dividends as forced income, whether I need the income or not. I vote for VTI(Vanguard Total US equity) as I can take the income out when I need it at the same tax rate as dividends(LT Cap Gains). My vote would be for VIG as I believe it to have more growth in the long term.

 

[Lsbcal]

I own VYM (Vanguard High Dividend Yield ETF) for a while. I like the dividend and price appreciation. I intend to accumulate more of this stocks.
However, PG recent earning suggest the dividend of most corporations will be slashed in the future.
I come to think VIG (Vanguard Dividend Appreciation Index Fund ETF) is better at this point in time. VIG yields less dividend but appreciate more.
Any thoughts?

I think you are on to something. Dividends are the wrong focus. The SP500 (VOO at Vanguard) nicely beats both VIG and VYM. You can see the relative performance here by entering the other two ETF's: https://www.early-retirement.org/forums/newreply.php?do=newreply&p=2679007

 

[ncbill]

A total return focus has beat out a dividend focus in the past, at least for indices.

As the Great Recession taught everyone, companies have no qualms about cutting or eliminating dividends altogether when times get tough.

Even though the conventional wisdom in the years before the GR was that they wouldn't.

 

[alaska55]

I think you are on to something. Dividends are the wrong focus. The SP500 (VOO at Vanguard) nicely beats both VIG and VYM. You can see the relative performance here by entering the other two ETF's: https://www.early-retirement.org/forums/newreply.php?do=newreply&p=2679007

Last time I checked your post belongs in Fire and Money. As it says "This is the forum to discuss active vs passive / index investing"

 

[Lsbcal]

Last time I checked your post belongs in Fire and Money. As it says "This is the forum to discuss active vs passive / index investing"

I am not discussing active vs passive. I have no problem with either approach.

 

[HarveyS]

However, PG recent earning suggest the dividend of most corporations will be slashed in the future.

Could you please explain this? If PG is Proctor & Gamble I don't see the suggestion of a dividend cut in their earnings announcement. Thanks.

 

[jr6035]

I own VYM (Vanguard High Dividend Yield ETF) for a while. I like the dividend and price appreciation. I intend to accumulate more of this stocks.
However, PG recent earning suggest the dividend of most corporations will be slashed in the future.
I come to think VIG (Vanguard Dividend Appreciation Index Fund ETF) is better at this point in time. VIG yields less dividend but appreciate more.
Any thoughts?

Why do you believe this? PG is a Dividend King. Ask the people who sold XOM, believing this. They just raised theirs.

 

[freedom2022]

Could you please explain this? If PG is Proctor & Gamble I don't see the suggestion of a dividend cut in their earnings announcement. Thanks.

Why do you believe this? PG is a Dividend King. Ask the people who sold XOM, believing this. They just raised theirs.

In the latest PG (Proctor & Gamble) earning report: "Price hikes helped offset higher freight costs but couldn’t keep up with climbing commodity costs". I just conclude even PG can't maintain high dividend in the future. I could be wrong.

 

[HarveyS]

Thanks for the update and clarification. I can understand connecting the dots as you did for PG, but to add "suggest the dividend of most corporations will be slashed in the future" is a stretch to me.
First, I believe PG was speaking of the most recent quarter. In future quarters, prices will increase to meet costs. Inflation will flow to the consumer. Cost reduction activities will also be happening. Just the inflation we have now will not cause PG to cut the dividend.
Second, a few more data points. Deere demonstrated on their large tractor business that price increases matched cost increases. For Construction and Forestry, price increases were 1.5x cost increases. Only in small ag was cost > price increases. Again, for the last quarterly report. CaseNewHolland reported that increased costs were only partially offset by price in Q3, and they were taking cost reduction steps as well as raising prices. Caterpillar reported that cost increases and price realization offset 95% of the manufacturing cost increases in Q3.
Sure, consumer goods are different than industrials. I believe in the pricing power of large brands and the ability to reduce costs to protect margins and market share. I do not believe that inflation pressures will cause dividends to be reduced, let alone "slashed". And I appreciate your opinion and willingness to share it.

 

[target2019]

Noticed that Schwab dividend ETF SCHD dropped PG from its holdings this year.

 

[OverThinkMuch]

Isn't a big disadvantage of dividend investing the lack of tech companies?
VYM holds 7% tech, versus 28% for the wider market.

Both Vanguard Value ETF (VTV) and VYM are beating the market YTD, but are behind over the past 5 years. I view dividend investing as an indirect value tilt.

 

[target2019]

For reference, another ETF (SCHD) as of 09/30/2021 has these allocations:

Financials
22.40%
Information Technology
20.69%
Consumer Staples
13.93%
Industrials
13.63%
Health Care
12.16%
Consumer Discretionary
6.62%
Communication Services
5.09%
Materials
3.58%
Energy
1.90%

As they point out, this can change. How much tech or whatever is in a div fund is up to the managers and policy.

 

[OverThinkMuch]

Big tech companies like Amazon, Google and Facebook have never paid a dividend. For a high dividend ETF like VYM, Apple (0.6%) or Microsoft (0.7%) would be difficult to justify. Am I wrong to think most tech companies are fast growing and avoid dividends?

The top holdings of SCHD contain two semiconductor stocks, Broadcom and Texas Instruments, both paying a 2.5% dividend. And not too shabby on returns, either, with 10 year performance of Broadcom being 35%/year. I guess that's the answer: semiconductor stocks that pay dividends.

 

[target2019]

SCHD holds over 100 companies. I think that is helping the ETF. Will it continue? I don't know.

SCHD has these tech companies.
Symbol, % of Assets
AVGO, 4.44
TXN, 3.85
CSCO, 3.75
IBM, 3.30
ADP, 3.26
PAYX, 1.31
WU, 0.23
KD, 0.11
CASS, 0.02

 

[OverThinkMuch]

Thanks for the list of dividend tech companies. The largest technology ETF (by assets) is Vanguard's VGT, which has those same stocks:
https://investor.vanguard.com/etf/profile/portfolio/VGT/portfolio-holdings

1.82% Cisco Systems Inc.(CSCO)
1.68% Broadcom Inc.(AVGO)
1.34% Texas Instruments Inc.(TXN)
0.86% International Business Machines Corp.(IBM)
0.74% Automatic Data Processing Inc.(ADP)
0.31% Paychex Inc.(PAYX)
0.06% Western Union Co.(WU)
0.00% Cass Information Systems Inc.(CASS)

I don't see Kyndryl (KD) in the list yet, which states "as of: 10/31/2021". Since KD was a Nov 4 2021 spin-off from IBM, it will likely be there at the end of this month.

(1) I'm surprised ADP, PAYX, and WU are tech companies and not finance related.
(2) Where did you find that list organized by sector? I searched several places for a full listing of holdings that broke them down by sector, but even the prospectus didn't have it.

 

[target2019]

Seearched SCHD holdings and found a download link on this page: https://www.schwabassetmanagement.com/products/schd

Yesterday I tried Portfolio Visualizer with VYM-VIG-SCHD each in a portfolio for comparison. You can probably find data to support any of the choices. Rolling returns was interesting. VYM and SCHD were equal on the 60-month measurement.
https://www.portfoliovisualizer.com...ocation2_2=100&symbol3=SCHD&allocation3_3=100

 

[target2019]

ADP, PAYX and WU are in Info Technology > IT Services > Data Processing & Outsourced Services Sub-Industry

 

[OverThinkMuch]

Oh, that little "Export All Holdings" link. I didn't even see that when I visited the page now, but spotted it after re-reading your post. Thanks for the help.

I've been using Portfolio Visualizer's "asset correlation" more recently, so I ran some numbers on that. If you check "VYM SCHD VTV", you can see 0.98 correlations from VYM to SCHD and to VTV. There's a strong correlation over the past decade between value and high dividend yield, it appears.

For me, correlations can help find a lack of diversification from two assets that are overly correlated. Someone investing in both VYM and SCHD should be aware they are very similar ETFs.

 

[freedom2022]

Thanks for the list of dividend tech companies. The largest technology ETF (by assets) is Vanguard's VGT, which has those same stocks:
https://investor.vanguard.com/etf/profile/portfolio/VGT/portfolio-holdings

Why Amazon and Google are not in VGT? They are technology stocks.
They are in VUG.
Any thought about VGT vs VUG?

 

[OverThinkMuch]

You mean Amazon the retail company? And Google the communications company?

Vanguard uses a provider to decide the market segment for each stock. A few years ago, several companies were shifted out of tech, and moved into other segments. Amazon and Google were among the victims of that migration.

You could go with Nasdaq 100 (QQQ), which is the most popular tech ETF, with VGT second. Third place is Technology Select Sector SPDR Fund (XLK) if QQQ isn't what you had in mind.

 

[freedom2022]

Thank you.
I am certainly interested in QQQ.

 

[target2019]

QQQ = Questions, Questions, Questions


I've been thinking about this also. Add the risk, or just be content with the value side in our taxable portfolio. Maybe QQQ or something similar? But...

"Technology and communications stocks dominate QQQ stock, accounting for more than two-thirds of the index. That heavy sector concentration is a risk. The QQQ will suffer much more than the S&P 500 if tech stocks correct."
https://www.investors.com/news/technology/qqq-stock-buy-now/

I suppose this depends on how the account is used, what purpose it serves.

 

[OverThinkMuch]

QQQ has $213 billion in assets, a few of which were just added days ago.
https://etfdb.com/etf/QQQ/#fund-flows

I view QQQ as tech ETF, which you can see from it's top holdings. (GOOG + GOOGL are the same company, so Google is the #3 holding).
https://etfdb.com/etf/QQQ/#holdings

QQQ has double the weight of the top tech stocks in the stock market. As long as those holdings beat the market, so will QQQ. But nobody can say if, or how long that will be.

I bought QQQ earlier this year because I don't think the advantage is going away soon. Those big holdings can control an aspect of the internet, and are still allowed to buy up competitors. I don't think Congress knows what to do about it. (And sometimes doesn't know anything about it, like Zuckerberg's famous "Senator, we run ads" line)