STUDY
Dividends: Growth (VIG) vs High Yield (VYM)
Dividend investing isn’t just about today’s yield. This study contrasts a dividend-growth approach with a high-yield approach, plus a broad market baseline, to show how total return and drawdowns actually differ.
Educational content only. Not personalized investment or tax advice. Past performance does not guarantee future results.
TL;DR
- Dividend growth (VIG-style) often behaves like “market, but slightly more quality,” with a moderate yield.
- High yield (VYM-style) pays more income upfront, but it does not automatically win on total return.
- The broad market (SPY-style) is the baseline; the real choice is a tilt toward income or quality, not “free” alpha.
Method
We compare three simple, rules-based approaches built to resemble broad U.S. ETFs:
- Dividend Growth: VIG-style, focusing on companies with a history of dividend growth (quality tilt, moderate yield).
- High Yield: VYM-style, focusing on higher-yield names (more income, less emphasis on growth quality).
- Broad Market: SPY-style baseline, capturing large-cap U.S. equities without a dividend screen.
We look at total return paths (price + dividends reinvested), in USD, and ignore taxes/fees so you can isolate the behavior of the tilt. All series start at 1.00× and are plotted on the same normalized scale.
The chart and table use stylized 2015–2024 paths to highlight trade-offs between income, quality, and broad exposure. They are not a precise recreation of any one fund’s exact history.
Notes
- Dividends are assumed reinvested (that’s the cleanest way to compare long-run compounding).
- We care about total return, not just income; high yield with weak price growth is not a free lunch.
- Change the time window or fund choices and the numbers move; the “market vs growth vs yield” logic still holds.
- Educational illustration only. Not personalized investment advice or a guarantee of future results.
Key chart
Normalized growth of Dividend Growth (VIG-style), High Yield (VYM-style), and a broad market baseline (SPY-style). All start at 1.00×. The gaps show what you trade when you tilt toward income or quality versus the market.
Stylized chart for intuition. Real outcomes depend on the specific fund rules, fees, taxes, and market period.
What the data says
In many windows, the broad market edges out both dividend growth and high yield on pure CAGR, because it holds more of the “low dividend, high reinvestment” growth names that can drive index returns.
Dividend growth often tracks the market with a quality tilt and sometimes slightly smoother drawdowns. High yield delivers more cash flow, but can lag on total return if the yield is tied to slower growth, sector concentration, or cyclicality.
The goal is not to crown a winner forever. The goal is to force you to measure dividends as part of total return, not as a separate “safe” bucket.
When dividend growth (VIG-style) can fit
- You want dividend reliability and gradual growth, not the highest yield this year.
- You like quality screens layered on top of broad equity exposure.
- You accept a moderate yield supported by earnings and balance-sheet strength.
- You evaluate results in total return, not “income only.”
When high yield (VYM-style) can fit
- You genuinely need more portfolio income today (retirement, partial drawdown phase).
- You understand higher yield can mean sector concentration and different risks.
- You diversify beyond one income fund and do not treat yield as a guarantee.
- You still track total return (price + reinvested income), not just payout size.
When yield chasing backfires
- You pick by highest yield and ignore what drives it (sector risk, payout cuts, leverage).
- You treat dividends as “safe” and price as “noise,” then get shocked by deep drawdowns.
- You benchmark to the S&P 500 after the fact and rage-quit whenever your tilt lags.
- You do not reinvest dividends when you do not need the cash, kneecapping compounding.
Dividend investing is just a different slice of equity risk. Know what you are tilting toward: quality, yield, or “own the market.”
Summary
| Series | CAGR | Max DD | Worst 12-mo |
|---|---|---|---|
| Broad Market (SPY-style) | ≈9.2% | ≈−25.0% | ≈−20.0% |
| Dividend Growth (VIG-style) | ≈8.6% | ≈−22.0% | ≈−18.0% |
| High Yield (VYM-style) | ≈8.1% | ≈−23.0% | ≈−19.0% |
Stylized values consistent with the 2015–2024 chart path. Real results depend on fund rules, fees, taxes, and period.
CLUSTER
Next steps: avoid the yield trap and think in total return
High yield can be a risk signal. Learn the common failure modes.
A broad index often beats “income hunting” for long-term outcomes.
Dividend ETFs are still ETFs: understand structure and trade-offs.
If you want “income,” share class choice changes your workflow and taxes.
CLUSTER
Next steps: taxes and implementation for non-US investors
Net yield can be far lower after cross-border withholding.
If you can access US assets, forms affect your withholding rate.
The full tax workflow matters more than headline dividend yield.
Choose a broker that keeps dividend/tax reporting manageable.
FAQ
Is a higher dividend yield always better?
No. High yield can reflect real cash generation, but it can also signal slower growth, sector concentration, or stressed businesses. Yield alone does not guarantee better total return.
Should I reinvest ETF dividends or take them as cash?
If you do not need the income for spending, reinvesting usually makes sense. Reinvestment is what turns dividends into compounding rather than consumption.
For compounding intuition, see Why Invest: How Compounding Grows Small Money .
Are dividend ETFs safer than broad market ETFs?
Not automatically. Dividend strategies tilt the portfolio (often toward value/sector exposure) and can still experience meaningful drawdowns. They are “different,” not “risk-free.”
Can I build a plan to live off ETF dividends alone?
You can increase income, but you still have price volatility and taxes. Most durable retirement plans are built on total return and a withdrawal rule, not only matching spending to dividend cash flow.
For dividend tax basics, start with Taxes Basics (US) .
If you want a dividend tilt, implement it with a simple allocation you can maintain for years.
Disclosure: We may earn a commission if you open an account using our links. You do not pay extra.
Want to sanity-check real funds? Plot VIG, VYM, and a broad-market ETF on the same TradingView chart and compare drawdowns.
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Educational content only. Not personalized investment or tax advice.
Investments can lose value and past performance does not guarantee future results. You are responsible for your own decisions and for confirming tax and legal rules in your country.