As the name of the Vanguard High Dividend Yield ETF (VYM 0.07%) says, it is a dividend-centric exchange-traded fund (ETF). That puts it up against a long list of alternatives, with two of the most prominent being the SPDR Portfolio S&P 500 High Dividend Yield ETF (SPYD -0.71%) and the Schwab U.S. Dividend Equity ETF (SCHD -0.80%). How does the Vanguard ETF stack up? It depends on what you are looking for.

Dividend yields first

The Achilles’ heel of the Vanguard High Dividend Yield ETF is its yield. At roughly 2.6%, it is well above the S&P 500 index’s scant 1.2%. But it is far below the nearly 3.9% yield offered by the Schwab U.S. Dividend Equity ETF, and the 4.5% of the SPDR Portfolio S&P 500 High Dividend Yield ETF.

If all you care about is yield, the SPDR ETF wins. But that is a very narrow way to look at what are three very different dividend-focused investments. A deeper understanding of what each of these exchange-traded funds do is needed to make a final decision.

Simple and complex dividend approaches

The Vanguard ETF is probably the simplest of the trio. It starts by taking all of the dividend paying stocks on the U.S. market. Then it selects the highest-yielding 50% of the list. The stocks are market-cap weighted, so the largest companies have the biggest impact on performance.

The most important takeaway from this approach is that the portfolio is huge, with over 550 stocks. That’s a lot of diversification, which could make this ETF a worthy alternative to an S&P 500 index fund. The expense ratio is a tiny 0.06%.

One step up on complexity is the SPDR ETF. Its starting points are the stocks within the S&P 500 index. That’s a group of 500 or so companies selected by a committee because they are large and economically important.

This adds a little bit of selectivity to the process of creating the ETF’s portfolio. But the overall logic is still pretty simple. The SPDR ETF owns just the 80 highest-yielding stocks in the S&P 500.

They are equally weighted, which helps reduce risk. This is important because buying the highest-yielding stocks will often mean buying companies that are struggling for some reason. The expense ratio is a low 0.07%.

The Schwab ETF is by far the most complex choice. It starts by looking at companies that have increased dividends for at least 10 years. Then it creates a composite score using the ratio of cash flow to total debt, the return on equity, the dividend yield, and a company’s five-year dividend growth rate.

The 100 companies with the highest composite scores get into the ETF with a market-cap weighting. The expense ratio is a tiny 0.06%. What’s unique here is that the Schwab ETF is pretty much doing what dividend investors would if they were picking stocks individually.

The winner isn’t clear-cut

If you are looking for a diversified portfolio of dividend stocks, the clear winner is the Vanguard High Dividend Yield ETF. As noted, the portfolio is so large that you could consider this ETF as a replacement for the S&P 500 index.

But having so many holdings means it goes pretty far down the yield spectrum, which has the effect of lowering the overall yield relative to other alternatives. That will limit the ETF’s appeal for a lot of dividend investors.

The relatively high yield from the SPDR Portfolio S&P 500 High Dividend Yield ETF could make it the winner for some income lovers. But it has the smallest portfolio and will inherently include some of the riskiest dividend stocks. That probably won’t appeal to more-conservative investors.

Which brings in the Schwab U.S. Dividend Equity ETF, which hits an interesting middle ground. It has an attractive yield and is highly selective, attempting to buy well-run companies that are growing and that have high yields.

The Vanguard fund isn’t a bad ETF, but if you are a dividend investor, you have other options that may be more attractive. Unless, of course, your primary goal is diversification.

Reuben Gregg Brewer has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.

The Capital Group Dividend Value ETF (CGDV 0.37%) is one of the largest exchange-traded funds focused on dividend-paying stocks. The fund has nearly $17.7 billion in assets under management (AUM), ranking as the eighth largest fund dedicated to dividend investment. Its focus on dividends makes it a popular option for those seeking passive income.

While CGDV is one of the largest and most popular dividend ETFs, that doesn’t necessarily mean it’s the best for passive income. Here’s a closer look at the fund and how it compares with other top dividend ETFs.

A closer look at the Capital Group Dividend Value ETF

The Capital Group Dividend Value ETF is an actively managed fund that seeks to invest in companies that produce above-average dividend income and can grow in value. It primarily invests in larger U.S. companies that pay dividends. However, the fund will invest up to 10% of its assets in larger companies outside the U.S. and some stocks that don’t currently pay dividends but have the potential to pay them.

CGDV currently has about 50 holdings, 90% of them U.S.-based, with 7% based outside the United States, and the remaining 3% consisting of cash. It has a reasonably diversified portfolio of dividend stocks by sector, led by technology stocks at 22%. Here’s a snapshot of its top five holdings:

• Microsoft, 6.4% of the fund’s holdings: While the technology giant has a rather low dividend yield at less than 1%, it was the largest dividend payer in the world last year, at nearly $23 billion. It has also increased its payment for 20 straight years, including by more than 10% last year.
• Broadcom, 5.6%: The semiconductor and software company has a dividend yield below 1%. It has increased its dividend for 14 straight years, including by 11% last year.
• RTX, 4.7%: The aerospace and defense contractor has a nearly 2% dividend yield. It has paid cash dividends every year since 1936 and raised its payment by 7.9% this year.
• British American Tobacco, 4.1%: The tobacco company has a dividend yield exceeding 6%. It has grown its dividend at a 5% compound annual rate over the past decade.
• GE Aerospace, 4.1%: The aerospace company has a roughly 0.5% dividend yield. It increased its dividend nearly 30% earlier this year.

As those top holdings show, the fund holds a mix of higher-yielding dividend stocks and lower-yielding but faster-growing dividend payers.

Over the past 12 months, CGDV has paid dividends equating to a 1.5% yield. That’s above the S&P 500‘s average of less than 1.5%.

Is CGDV the best dividend ETF for passive income?

The Capital Group Dividend Value ETF provides investors with an above-average dividend yield compared with the S&P 500, making it a better option than the broader market index for those seeking passive income.

However, several other ETFs have higher dividend yields. For example, the iShares Core High Dividend ETF (HDV 0.18%) has a 3.5% dividend yield based on its payments over the trailing 12 months. Meanwhile, the SPDR Portfolio S&P 500 High Dividend ETF (SPYD 0.28%) has a dividend yield of around 4.5%.

iShares Core High Dividend ETF is a passively managed fund that tracks the performance of the Morningstar Dividend Yield Focus Index. That index screens for companies with attractive dividend yields and strong financial qualities. The fund holds 75 companies. Its top holdings all have well-above-average dividend yields, and most companies have solid records of increasing their dividend payments.

SPDR Portfolio S&P High Dividend ETF is also a passively managed fund. It aims to track the S&P 500 High Dividend Index, which measures the performance of the top 80 high-dividend-yielding companies in the S&P 500.

In addition to their higher yields, these funds also have lower costs. The actively managed Capital Group Dividend Value ETF has a 0.33% ETF expense ratio. That compares with 0.08% for the iShares Core High Dividend ETF and 0.07% for the SPDR Portfolio S&P High Dividend ETF. Put another way, every $10,000 invested in CGDV would cost $33 annually, compared with $8 for HDV and $7 for SPYD. CGDV’s higher costs eat into the dividend income it would have paid to investors.

A good dividend ETF, but not the best for passive income

The Capital Group Dividend Value ETF is a solid fund for those seeking to invest in companies with above-average dividend yields and solid growth profiles. Those features could enable the fund to produce attractive total returns over the long term.

However, it’s not the best dividend ETF if your goal is generating passive income. It has a much lower yield and higher expense ratio than other top dividend ETFs, such as the iShares Core High Dividend ETF and the SPDR Portfolio S&P High Dividend Those ETFs are better options for those currently seeking to generate more passive income.

Matt DiLallo has positions in Broadcom. The Motley Fool has positions in and recommends Microsoft. The Motley Fool recommends British American Tobacco, Broadcom, GE Aerospace, and RTX and recommends the following options: long January 2026 $395 calls on Microsoft, long January 2026 $40 calls on British American Tobacco, short January 2026 $40 puts on British American Tobacco, and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.