Dividends: Growth (VIG) vs High Yield (VYM)

TL;DR

• Dividend growth (VIG-style) tends to track broad markets with a quality tilt and moderate yield.
• High yield (VYM-style) pays more income up front, but doesn’t automatically beat on total return.
• The broad market (SPY-style) is still a strong baseline; the real decision is whether you want a tilt toward income or quality, not “free” extra performance.

Method

We compare three simple, rules-based dividend approaches built from broad U.S. ETFs:

• Dividend Growth: VIG-style, focusing on companies that have grown their dividends over time (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 the large-cap U.S. market with no explicit dividend screen.

We look at total return paths (price + dividends reinvested), in USD, with fees and taxes ignored. All series start at 1.00× and evolve using monthly total returns.

This is a stylized comparison to highlight behavior and trade-offs, not a precise recreation of any specific fund history.

Notes

• All three paths assume dividends are reinvested, because that’s how long-run compounding usually works in practice.
• We care about total return, not just income; a high yield that comes from weak price growth is not a free lunch.
• Exact numbers will change by period; the pattern (growth vs yield vs broad market) is what matters.
• Educational only. Not personalized investment advice.

What the data says

In a typical sample, the broad market often edges out both dividend growth and high yield on pure CAGR, because it doesn’t filter out growth names that don’t pay much income yet.

Dividend growth tends to track the market with slightly smoother drawdowns and a tilt toward more established, profitable companies. High yield delivers more cash flow but can lag on total return if that yield comes from slower-growing or more cyclical businesses.

The summary table below uses illustrative numbers consistent with the chart: broad market on top, dividend growth close behind, high yield slightly lower but with heavy income.

When dividend growth (VIG-style) can fit

• You care about dividend reliability and gradual growth, not chasing the highest yield this year.
• You like quality screens (profitability, consistency) layered on top of a broad equity exposure.
• You’re fine with a yield that is “okay” but growing over time, supported by earnings.
• You still think in terms of total return, not just checks arriving in your account.

When high yield (VYM-style) can fit

• You genuinely need more income from the portfolio today (early retirement, partial drawdowns).
• You’re comfortable with the idea that higher yield can come with more sector concentration and different risks.
• You still diversify beyond just one high-yield fund and don’t treat yield as a guarantee.
• You measure performance in total return, including both price and reinvested income.

When yield chasing backfires

• You pick funds purely by highest yield and ignore what’s driving it (leverage, sector risk, payout cuts).
• You mentally treat dividends as “safe” and price as “noise,” then get shocked by deep NAV drawdowns.
• You compare everything to the S&P 500 after the fact and get frustrated whenever your income tilt lags for a stretch.
• You refuse to reinvest dividends when you don’t actually need the cash, handicapping long-run compounding.

Dividend investing is just one way to slice the same equity risk. The important part is knowing what risk you’re actually tilting toward: quality, yield, or “just own the market.”

Summary

Stylized values consistent with the chart. Real-world results depend on exact funds, rebalancing, and time period.