As we head into fall, it could be an excellent opportunity for long-term investors to add dividend stock exposure to their portfolios. Without getting too deep into the economics, a falling-rate environment tends to be a positive catalyst for dividend paying stocks, and with the Federal Reserve widely expected to gradually lower benchmark interest rates through at least the end of 2025, top-notch dividend stocks could get a nice positive tailwind.
You don't need to pick individual stocks or pay a hefty fee to get exposure. Vanguard has some excellent low-cost index funds that can get you exposure to an excellent assortment of great dividend stocks at a minimal investment expense. Two in particular that are worth a look are the Vanguard High Dividend Yield ETF(NYSEMKT: VYM) and the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG).
While I don't think dividend investors will necessarily go wrong with either ETF, there are some major differences to be aware of.
The Vanguard High Dividend Yield ETF
As the name suggests, the Vanguard High Dividend Yield ETF is an index fund that focuses on stocks with above-average dividend yields. And here's a key point: Stocks that pay high dividend yields tend to be more mature businesses, so that's exactly what you'll find here.
The ETF owns about 550 different stocks, and most are large cap companies. It is a weighted index, and top holdings include Broadcom(NASDAQ: AVGO), JPMorgan Chase(NYSE: JPM), ExxonMobil(NYSE: XOM), and Johnson & Johnson(NYSE: JNJ).
As of this writing, the High Dividend Yield ETF has a dividend yield of about 2.8%. It has an expense ratio of just 0.06%, which means that for every $1,000 in fund assets, just $0.60 will go toward investment fees annually.
Growth vs current yield
The Vanguard Dividend Appreciation ETF does things a little differently. Instead of emphasizing current dividend yield, the fund's benchmark index focuses on stocks with strong track records of increasing their dividends over time. Because it can include stocks with relatively low yields, as long as their payouts are increasing, it includes more growth-oriented businesses than the High Yield ETF.
This ETF has 339 stocks, and like the High Yield ETF, most are larger companies. Top holdings include Apple(NASDAQ: AAPL), Broadcom, Microsoft(NASDAQ: MSFT), and JPMorgan Chase. So, there is definitely some overlap between the two, but you're more likely to find major technology stocks in this one. Like the High Yield ETF, the Dividend Appreciation ETF also has a rock-bottom 0.06% expense ratio.
Which is best for you?
The bottom line is that the right Vanguard dividend ETF for you depends on your risk tolerance and goals. And for some investors, one is clearly the better choice. For example, if you rely on your portfolio for income, as many retirees do, the Vanguard High Dividend Yield ETF is likely the best choice. But if you're at a stage in your investing career where you're still focused on total returns and long-term compounding, the Vanguard Dividend Appreciation ETF might be the better fit.
Either way, these are two rock-solid dividend ETFs, and as mentioned, there is quite a bit of overlap between the two portfolios. Both can be excellent ways to increase your dividend exposure before interest rates start to fall and can be great long-term investments regardless of what the interest rate or economic environments do.
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JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Apple, JPMorgan Chase, Microsoft, Vanguard Specialized Funds-Vanguard Dividend Appreciation ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Broadcom and Johnson & Johnson and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
