Higher Dividends or Broader Growth? How the Two Funds Compare

SCHD and VOO are two of the most widely held ETFs in the United States, but they are built for different jobs. VOO owns the entire S&P 500 for a fee of 0.03% and aims to capture the growth of America’s largest companies, while SCHD owns about 100 high-quality dividend-paying companies for a fee of 0.06% and aims to deliver higher, growing income.

VOO typically pays a smaller dividend but holds the fastest-growing giants in the market, including the largest technology companies. SCHD typically pays a noticeably higher dividend yield, leans towards established, cash-rich businesses and holds far less technology.

Neither is better in every market. This guide compares how each fund chooses its stocks, what each costs, how their income and growth differ, how they have behaved in different markets, how they are taxed, and how many investors combine the two.

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Financial Regulation Courses (FRC) has no stake in which fund you choose. FRC sells no investments and earns no commission, so this comparison focuses on how each fund is built and what that means for your goals.

For video explainers on dividend and index ETFs, the FRC Retail Investing video series covers both funds and many others. FRC’s ETF Investing for Beginners course explains how ETFs work, and ETF Investing Strategies covers income and growth approaches in more depth. If ETFs are new to you, FRC’s guide to everything you need to know about ETFs explains their history, how they work and who provides them.

FRC’s programs and memberships are open to everyone. For a deeper look at each fund on its own, see FRC’s guides to SCHD for passive income and how to invest in the S&P 500.

SCHD vs VOO at a Glance

The yields of both funds change with their share prices and the dividends their companies pay. Checking each fund’s current figures on its provider’s website gives the up-to-date picture.

How VOO Chooses Its Stocks

VOO tracks the S&P 500, an index of about 500 of the largest US companies chosen by a committee at S&P Dow Jones Indices. Companies must meet requirements for size, liquidity and profitability to be included.

The index is weighted by market capitalization, so the largest companies make up the biggest share of the fund. In recent years, a small group of giant technology and communication companies has accounted for a large portion of the index.

Owning VOO means owning the broad US large-company market, whatever is leading it. FRC’s comparison of SPY vs VOO explains how VOO differs from the other major S&P 500 fund.

How SCHD Chooses Its Stocks

SCHD tracks the Dow Jones U.S. Dividend 100 Index, which applies a series of screens. To be considered, a company must have paid dividends for at least ten consecutive years and meet minimum size and trading requirements, and real estate investment trusts are excluded.

The index then scores companies on four measures: cash flow relative to total debt, return on equity, dividend yield and five-year dividend growth. The 100 highest-scoring companies make the index.

Holdings are weighted by market capitalization, but with caps of 4% on any single company and 25% on any one sector. The index is rebuilt each March and rebalanced quarterly, so its holdings change as companies’ finances and dividends change.

The Cost Difference

VOO’s expense ratio is 0.03%, or $3 a year for every $10,000 invested. SCHD’s is 0.06%, or $6 a year for every $10,000.

Both are among the lowest fees available for ETFs of their kind. The $3 gap per $10,000 is small compared with the differences in what the two funds hold.

For most investors, cost is not the deciding factor between these two. The bigger question is whether you want broad market growth, higher income, or a mix of both.

Dividend Income: SCHD’s Strength

SCHD’s main appeal is its income. Because it selects companies with long dividend records and strong dividend yields, its yield is typically well above VOO’s.

SCHD’s dividend payments have also grown strongly over time, rising in every calendar year since its first full year. FRC’s guide to SCHD’s dividend history shows every year’s payout.

VOO pays dividends too, but its yield is lower because many of its largest holdings reinvest most of their profits into growth rather than paying them out. FRC’s guide to when VOO pays dividends explains its quarterly schedule.

Growth: VOO’s Strength

VOO’s strength is its exposure to the market’s fastest-growing companies. When large technology companies lead the market, as they have for much of the past decade, VOO captures that growth in full.

SCHD’s screens tend to favor mature, established companies that return cash to shareholders, and they exclude many fast-growing firms that pay little or no dividend. As a result, SCHD holds far less technology and tends to lag in markets led by growth stocks.

This is the core trade-off. VOO offers more growth potential with a lower yield, while SCHD offers more current income with less exposure to the market’s biggest growth engines.

Sector Differences

VOO’s largest sector exposure is information technology, followed by sectors such as financials, health care, consumer discretionary and communication services. Its weights simply mirror the market.

SCHD’s 25% sector cap and dividend screens produce a very different mix. It typically has heavier weights in sectors such as financials, health care, consumer staples, energy and industrials, and a much smaller weight in technology.

These differences mean the two funds can behave quite differently in a given year. A year led by technology stocks usually favors VOO, while a year when investors favor value, income or defensive companies can favor SCHD.

What Happens When a Company Cuts Its Dividend

Because SCHD selects companies partly on their dividend records and financial strength, a company that cuts or suspends its dividend, or whose finances weaken, risks failing the screens. At the next annual rebuild in March, companies that no longer qualify are replaced with stronger candidates.

This rules-based refresh helps keep the portfolio focused on companies with sustainable payouts. It does not prevent losses between rebuilds, and a company’s share price often falls before its dividend is cut.

VOO has no dividend test at all. A company stays in the S&P 500 as long as it meets the index committee’s size and other criteria, whether it pays a dividend or not.

Concentration and Diversification

VOO holds about 500 companies, but because it is weighted by size, its largest holdings make up a large share of the fund. A few giant companies can move it significantly.

SCHD holds about 100 companies, with no single company above 4% at each rebalance. That gives it less concentration in individual giants, but fewer companies overall.

Both offer meaningful diversification compared with owning a handful of stocks. They diversify in different ways, which is part of why some investors hold both.

How They Behave in Different Markets

The two funds have taken very different paths in different market environments. In 2022, when rising interest rates hit growth stocks hard, the S&P 500 fell about 18% including dividends, while SCHD fell only about 3%.

In years when large technology companies have surged, VOO has pulled well ahead. Over long stretches dominated by growth stocks, VOO’s total return has generally been higher.

This pattern reflects their designs rather than a flaw in either. Investors should expect each fund to lead in some periods and lag in others.

Volatility and Risk

SCHD’s focus on established, financially strong companies has often made it less volatile than the broad market, particularly in sell-offs that hit growth stocks hardest. Its lower weight in technology has cushioned it in some downturns.

That does not make it immune to losses. In a broad market decline, such as a recession that hits financial, industrial and energy companies, SCHD can fall as much as or more than the S&P 500.

VOO’s risk profile is the market’s risk profile. Its heavy weight in large technology companies means it can rise faster in strong markets and fall harder when those companies are out of favor.

Total Return vs Dividend Yield

A high dividend yield does not automatically mean a better investment. The return that counts is total return, which combines price changes and dividends.

A fund paying a higher dividend but growing more slowly can deliver a lower total return than a fund paying less but growing faster. Equally, steady dividends can cushion a portfolio in a falling market.

Income investors who live on their dividends may value SCHD’s higher, rising cash payments. Investors who are still building wealth and reinvesting everything often focus on total return instead.

Taxes on SCHD and VOO

Both funds are tax-efficient ETFs, and both rarely distribute capital gains. Most of their dividends are qualified dividends, taxed at lower long-term capital gains rates for investors who meet the holding period.

Because SCHD pays more in dividends, it generates more taxable income each year in a taxable account. VOO’s lower yield means more of its return comes from price growth, which is not taxed until you sell.

That makes VOO slightly more tax-efficient in a taxable account for investors in higher brackets, while SCHD’s higher income may be better suited to an IRA or other tax-advantaged account for some investors. FRC’s guides to qualified vs non-qualified dividends and tax-efficient ETFs for a taxable brokerage account explain the details.

Worked Example: The Income Investor

A 66-year-old retiree has $300,000 to invest and wants regular income to help cover living costs. If a dividend fund yields around 3.5% and a broad market fund around 1.2%, the dividend fund would pay roughly $10,500 a year, while the broad market fund would pay about $3,600.

For this investor, the higher income from a fund like SCHD may fit the goal of spending dividends without selling shares. The trade-off is less exposure to fast-growing companies, which could mean slower growth of the capital over time.

Yields change, so the actual income would vary. FRC’s guide to Form 1099-DIV explains how that income is reported for tax.

Worked Example: The Long-Term Builder

A 28-year-old invests $500 a month for retirement and reinvests every dividend. With decades ahead, this investor’s priority is the largest possible total return rather than current income.

A broad market fund such as VOO gives full exposure to the market’s growth leaders, at the lowest cost. Its lower yield also creates less taxable income each year if held in a taxable account.

For this investor, a fund like VOO often fits the goal better as a core holding. Some investors in this position add a smaller dividend fund for diversification across investment styles.

Can You Own Both?

Many investors hold SCHD and VOO together. VOO provides broad market exposure and growth, while SCHD adds higher income and a tilt towards value and quality companies.

There is overlap, because many of SCHD’s companies are also in the S&P 500. However, SCHD’s different weights and its lighter technology exposure mean the combination is meaningfully different from VOO alone.

The right mix depends on your goals, timeline and need for income. An investor’s asset allocation across these styles should reflect their own situation rather than a one-size-fits-all rule.

Where to Buy SCHD and VOO

Both funds trade on major US exchanges and can be bought commission-free at most large brokerages, not only at Schwab or Vanguard. You can hold either one in a taxable brokerage account, a traditional or Roth IRA, or in some cases a workplace plan’s brokerage window.

Many brokerages also let you buy fractional shares and set up automatic monthly purchases. That makes it easy to invest a fixed amount in either fund every month, regardless of the share price.

FRC’s guide to how to choose a brokerage account compares the main firms. FRC’s guide to Roth IRA rules explains how holding either fund in a Roth IRA can make its future growth and dividends tax-free.

Other Funds Investors Compare

Investors comparing SCHD and VOO often look at other popular funds too. VTI holds the total US stock market, including small and mid-sized companies, while QQQ focuses on the Nasdaq-100 and is even more concentrated in technology.

On the income side, JEPI uses an options strategy to generate higher monthly income. FRC’s comparison of VOO vs VTI vs QQQ and its guide to JEPI explained cover these alternatives.

Each fund serves a different purpose. Understanding what each is designed to do is the key to choosing between them.

Common Misunderstandings

One misunderstanding is that SCHD is a safer version of VOO. Both are stock funds that can fall sharply in a bear market, and SCHD’s lower technology weight changes its risks rather than removing them.

Another is that a higher yield always means a higher return. Over many periods, the faster growth of the broad market has outweighed SCHD’s extra income.

A third is that SCHD’s price drop in October 2024 was a loss. It was a 3-for-1 share split, which tripled the number of shares and cut the price per share without changing the value of anyone’s holding.

Is Your Money Safe in SCHD or VOO?

Both funds are regulated investment companies overseen by the SEC, with their holdings kept by independent custodians. FRC’s guides to Is Charles Schwab Safe? and Is Vanguard Safe? explain how each provider is structured and regulated.

When you hold either fund at a SIPC member brokerage, your account is protected up to $500,000, including $250,000 in cash, if the firm fails and assets are missing. This protection does not cover market losses.

Like all stock funds, both will rise and fall with the market. Their protections cover the safekeeping of your investments, not their value.

Keep Learning

Comparing a dividend fund with a broad market fund teaches one of the most useful lessons in investing: every fund is built for a purpose. Matching that purpose to your own goals is what turns a ticker into a plan.

The FRC dictionary is more than a dictionary. It is a library of explainer videos, written explanations and on-page quizzes, so you can open any term, such as index fund, and go deeper whenever something is unclear.

FRC’s programs and memberships are open to everyone. FRC’s Investing for Beginners guide is a natural next step if you are building your first portfolio.

Your Next Step

SCHD and VOO are both low-cost, widely held ETFs, but they serve different goals. VOO offers broad exposure to America’s largest companies and their growth, while SCHD offers higher, growing dividend income from about 100 established, financially strong businesses.

Decide whether your priority is growth, income or a balance of both, then choose the fund, or the combination, that fits your plan.