This “Boring” Vanguard Dividend ETF Is Quietly Beating the S&P 500 in 2026

Dividend ETFs spent a decade quietly losing ground to the S&P 500 for three very specific reasons. One of Vanguard's most overlooked funds may finally be turning that story on its head.

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For much of the past decade, dividend ETFs have largely trailed broad market-cap-weighted index funds. I think that comes down to three main reasons.

First, specialized dividend strategies generally charge higher fees than plain-vanilla index funds. Even seemingly small differences in expense ratios compound over long holding periods.

Second is taxes. Outside of tax-advantaged accounts like a Roth IRA, every dividend payment is generally a taxable event. Even if the underlying investment performs well, taxes can quietly chip away at long-term returns.

The third, and probably most important, reason is factor exposure. Many dividend ETFs naturally tilt toward value stocks, while the last decade belonged overwhelmingly to growth. As mega-cap technology companies drove the S&P 500 to repeated highs, value-oriented dividend strategies simply struggled to keep pace.

That dynamic has started to shift in 2026. Value stocks have staged a resurgence as several Magnificent Seven companies have stumbled amid concerns that artificial intelligence capital spending may have become overly aggressive. It’s still far too early to declare a lasting change in leadership, but the performance has been noticeable.

As of Aug. 4, 2026, the Vanguard High Dividend Yield ETF (VYM) has generated a 16.58% cumulative total return, outperforming the Vanguard S&P 500 ETF (VOO) at 13.75% year to date. One year doesn’t establish a long-term trend, but VYM remains one of the dividend ETFs I continue to keep on my watch list.

VYM tracks the FTSE High Dividend Yield Index. The index excludes real estate investment trusts (REITs), removes companies that have not paid a regular dividend during the previous 12 months or are not expected to pay one over the coming year, then ranks the remaining stocks by their forward dividend yield. Those companies are subsequently weighted by market capitalization.

The result is a broadly diversified portfolio of 605 companies that carries a noticeable large-cap value tilt without sacrificing quality. Sector allocations also differ meaningfully from the S&P 500. Financials represent the largest allocation at 20.7%, followed by technology at 14.6%, industrials at 14.4%, and healthcare at 12.4%.

That value bias shows up in the portfolio’s valuation metrics as well. VYM currently trades at an average price-to-earnings ratio of 21.6, below that of the S&P 500, while still producing an impressive 19.4% return on equity.

One feature that often gets overlooked is VYM’s tax efficiency. The fund currently offers a respectable 2.22% 30-day SEC yield without relying on covered calls or other derivative strategies that cap upside. More importantly, Vanguard reported that 100% of VYM’s 2025 dividend and net short-term capital gain distributions qualified as qualified dividend income, making them eligible for the lower long-term capital gains tax rates for most investors.