Factor Flavors: A Taste of U.S. Dividend ETFs
When you buy a “dividend” ETF, what are you actually getting? It seems simple enough: a basket of stocks that pay dividends. But just like bubble gum, that “classic bubble gum flavor” can mean very different things. Some are sugary sweet upfront, some are designed for long-lasting flavor, and others have a surprising pop. The same is true for factor ETFs.
Welcome to “Factor Flavors,” the series where we look under the hood to reveal the unique recipes behind popular ETFs that target the same factor. Today, we’re exploring the world of U.S. Dividend ETFs, and you’ll see that a simple “dividend” label can hide a wide range of investment philosophies. We’ll be comparing four popular funds, each with its own distinct flavor:
- WisdomTree U.S. LargeCap Dividend Fund (DLN)
- Schwab US Dividend Equity ETF (SCHD)
- Vanguard Dividend Appreciation ETF (VIG)
- ALPS Sector Dividend Dogs ETF (SDOG)
Let’s dig in and see what makes them tick.
The Dividend Landscape
Before we compare our specific funds, it’s helpful to understand the sheer scale of the dividend investing space. Within the U.S. Size & Style composite, the “Factor: Dividend” strategy is a heavyweight, commanding over $474 billion in assets across 101 different funds. But these funds aren’t all the same. The vast majority of assets are concentrated in the Large Cap space, which is further divided into categories like Value and Blend. This illustrates that even within a single factor, investors have a wide menu of options to choose from.
It’s also important to clarify how we classify these funds. We tag ETFs that use dividends as their primary screening tool as ‘Factor: Dividend.’ However, a common assumption is that any dividend screen automatically results in a ‘Value’ fund. While that’s often true for strategies that screen for high dividend yield, like SDOG, it’s not a universal rule. Methodologies that screen by total dividend payout (like DLN) or consistent dividend growth (like VIG) can lead to very different portfolio characteristics. This is why you see some dividend ETFs classified as ‘Blend’ rather than ‘Value’—their flavor is less about deep value and more about quality or stability. This difference in the recipe is exactly what we’re here to explore.
| Category | # of Funds | Assets ($M) |
|---|---|---|
| Equity: U.S. Large Cap – Value | 73 | $332,350 |
| Equity: U.S. Large Cap – Blend | 13 | $116,342 |
| Equity: U.S. Mid Cap – Value | 3 | $13,799 |
| Equity: U.S. Small Cap – Value | 6 | $8,103 |
| Equity: U.S. Mid Cap – Blend | 2 | $1,895 |
| Equity: U.S. Small Cap – Blend | 4 | $1,700 |
The Performance Story: A Tale of Different Markets
A quick look at calendar year returns tells a fascinating story. These funds don’t move in lockstep; their unique construction leads to very different outcomes depending on the market environment.
Take the turbulent market of 2022. The S&P 500 (SPY) fell a painful -18.14%. During this downturn, SDOG and SCHD proved to be the most defensive, losing only -0.15% and -3.23%, respectively. Their value-oriented and high-yield methodologies provided significant protection. In contrast, VIG, which focuses on dividend growth, fell -9.79%—better than the market, but less defensive than its peers.
Now, flip to the 2023 rally, where SPY soared 26.14%. Here, VIG and DLN shined, returning 14.45% and 9.94%. SCHD and SDOG, the heroes of the previous year, lagged significantly, posting gains of only 4.58% and 4.09%. This shows a clear pattern: the funds that protected the most on the downside captured less of the subsequent rally.
This performance divergence isn’t random. It’s a direct result of how each fund is built.
Under the Hood: The ‘Why’ Behind the Performance
Let’s break down the unique recipe of each fund to understand its distinct flavor.
VIG: The Low-Leverage Fortress
Flavor Profile: VIG’s methodology is simple and effective: it targets companies that have a record of increasing dividends over time. It’s not about the highest yield today, but the consistency of growth. This leads to a portfolio of high-quality, stable companies.
The ‘Why’: VIG has the lowest Long-Term Debt-to-Equity ratio (103.4) of the group and a high Return on Equity (22.6), reflecting fundamentally strong balance sheets. It also has a significant tilt towards the Information Technology sector (27%) compared to the other dividend funds, which helps it participate more in market rallies. Its 3-year upside capture of 90.79% vs. a downside capture of 82.99% gives it a balanced, quality-focused profile.
SCHD: The All-Around Quality Player
Flavor Profile: SCHD takes a more complex, multi-faceted approach. It screens for companies with at least 10 consecutive years of dividend payments and then ranks them based on four fundamental factors: cash flow to total debt, return on equity, dividend yield, and 5-year dividend growth rate. This creates a blend of quality and value.
The ‘Why’: This fund’s focus on cash flow and ROE is evident in the fundamentals—it boasts the highest ROE of the group (24.6). However, its sector bets are starkly different from VIG. SCHD is heavily weighted in Financials (19.8%) and Industrials (16.2%) while having a much smaller allocation to Technology (8.2%). This value-oriented tilt explains its strong defensive posture in 2022 but also why it lagged in the 2023 tech-led rally.
SDOG: The High-Yield, Equal-Weight Maverick
Flavor Profile: SDOG follows a classic “Dogs of the Dow” strategy but applies it across sectors. It selects the five highest-yielding stocks from ten different S&P 500 sectors and then equal-weights them. This results in a portfolio with a deep value and high-yield tilt.
The ‘Why’: The equal-weighting methodology is key. It gives SDOG a significant tilt away from the mega-cap stocks that dominate market-cap-weighted funds. This, combined with its strict high-yield screen, results in the lowest Price-to-Book (1.68) and Price-to-Sales (0.97) ratios of the bunch. It’s a pure-play value and yield strategy, which made it the top performer in the 2022 downturn but a laggard in growth-led markets. Its low holdings overlap (only 8% with SPY) makes it a true diversifier.
DLN: The Broad Market Hybrid
Flavor Profile: DLN takes the broadest approach. It starts with a universe of U.S. large-cap dividend-paying stocks and then weights them by the total dollar amount of dividends they pay. This naturally favors large, stable companies.
The ‘Why’: This methodology results in a portfolio that looks more like a core large-cap fund than a niche dividend strategy. It has the highest overlap with the S&P 500 (54%) among the dividend funds. Its sector weights in Technology, Health Care, and Financials are balanced and don’t stray too far from the benchmark. With a 3-year beta of 0.84, it offers a slightly more defensive version of the broad market, but without the distinct value or quality tilts of the others.
Choose Your Flavor
As we’ve seen, not all dividend ETFs are created equal. The right one for you depends entirely on your investment goals.
- Seeking Quality & Growth? VIG offers a portfolio of companies with strong balance sheets and a history of rewarding shareholders, making it a good fit for participating in up-markets.
- Want a Blend of Quality & Value? SCHD‘s multi-factor screen provides a balanced approach that has shown strong defensive characteristics.
- Looking for a Deep Value Tilt & Diversification? SDOG‘s unique, equal-weight, high-yield strategy offers a very different return profile from the broad market.
- Prefer a Core Holding with a Dividend Focus? DLN provides broad market exposure with a slight defensive lean by weighting companies based on their total dividend payments.
See the Full Picture
The insights in this post were drawn from a detailed fund comparison report. If you want to dive deeper into the data, explore different time frames, and run your own head-to-head ETF analyses, the best tool is at your fingertips.
Disclosures
This material is for informational purposes only and should not be considered investment advice. All investments, including ETFs, involve risk, including the possible loss of principal. Investors should consider their investment objectives, risks, charges, and expenses carefully before investing.
This analysis was developed by the team at ETF Action. We leverage advanced AI tools to assist in the drafting and refinement of our content, based on our expert prompts, direction, and final review.
