VYM vs VIG: Which Dividend ETF Has More Upside?

Unless you’re heavy in gold, it’s hard to find shelter from the Trump tariff-fuelled volatility storm. And while it’s tempting to halt the pain by selling off one’s stock portfolio, doing such would likely do more harm than good, especially if the asset allocation is already in the optimal spot. The last thing an investor should seek to do is sell at a point of maximum pain (and pessimism) and just tell themselves they’ll buy back once there’s more calm out there. Indeed, waiting for calm and clarity on Trump’s tariff policies could entail missing out on the entire ride back to new highs. Of course, such a rally could be V-shaped. And that’s the real risk for investors looking to time their exit in today’s bruising market.

What’s the best way to navigate a rough environment? I believe that sticking with high-quality stocks with modest price-to-earnings (P/E) multiples, strong fundamentals, and relatively resilient long-term growth trajectories remains a wise idea. And while it can be tough to keep up with all of the free-falling stocks that nosedive past you, I do think that simply picking up a quality ETF on the way down could be good enough to punch your ticket to the next hopeful rebound.

A Trump recession could be a massive self-inflicted wound that’ll be tough to heal.

Indeed, it’s hard to think about a market boom when Trump is willing to endure a recession to accomplish goals that may not be attainable through tariffs. Either way, most economists would agree that Trump’s tariffs are ill-advised. In fact, former Fed chair and Treasury Secretary Janet Yellen said she’d give the Trump tariffs a “failing grade” and that they’ve created one of the “worst self-inflicted wounds” she’s seen. The big question is when the healing will begin. With stocks losing speed on Thursday, falling 5%, around half of the gains from Wednesday’s monster run, it seems like investors are now growing fearful over rising tariffs on China, which has been supposedly excluded from the 90-day tariff pause that sent stocks soaring on the previous day.

At such an uncertain juncture, giving up on quality, like the Vanguard High Dividend Yield Index Fund ETF (NYSEARCA:VYM) and the Vanguard Dividend Appreciation Index Fund ETF (NYSEARCA:VIG) doesn’t make a lot of sense as they fall alongside most everything else as Trump tariffs threaten to propel the world into a recession or even a depression. While Trump’s all about the “art of the deal,” tariffs may result in nothing less than a pyrrhic victory at best and a bruising depression at worst. Of course, all of the pain ends when Trump says so. And it could be right back to the AI boom once the dotted line gets signed and a friendly deal can be struck with China.

Vanguard High Dividend Yield Index Fund ETF

The VYM is down around 11% from its recent highs and strikes me as one of the perfect ETFs to hold through a period of profound uncertainty. Of course, the low beta (0.78) makes for a somewhat smoother ride. However, the main attraction, in my view, is the 2.9% dividend yield. With durable, resilient firms making up the ETF, you’re getting a robust payout, one that will reward investors, regardless of where markets end the year or what the shape of the eventual recovery will be. For retirees who want to derisk without bailing on stocks, the VYM stands out as a solid bet. As a Vanguard ETF, you’re getting a rock-bottom expense ratio (less than 0.1%) along with a more balanced risk/reward.

Vanguard Dividend Appreciation Index Fund ETF

The VYM is a great pick for yield seekers, but for those who want more upside in the event Trump walks back on China tariffs, the VIG could be the better option. Shares have done a fantastic job of holding up, now down close to 11% (about the same as the VYM). However, where the VIG stands out is in its holdings’ ability to grow their dividends over time. Indeed, to score consistent dividend growth, you need a robust, predictable, durable, and growthy business model.

While the VIG has a higher beta (0.82), alongside a lower yield (1.83%), I do view the ETF as the better option for those seeking a better shot at scoring superior total returns over the longer run. Over the past decade, the VIG has outrun the VYM by quite a margin, surging 123% versus the VYM’s 73%. As tides turn lower, I expect both ETFs to outperform the S&P 500, given their focus on high-quality dividend payers, many of which can absorb the shock from Trump tariffs without imploding.

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