Alternatives to SCHD: Higher-Yielding and Growth-Enhanced Dividend ETF Strategies

Investors seeking alternatives to the Schwab U.S. Dividend Equity ETF (SCHD) in 2025 face a critical decision: balancing high yields with sustainable returns and risk management. While SCHD offers a 3.83% yield and a focus on dividend-paying stocks, newer strategies like the Fidelity High Dividend ETF (FDVV), Vanguard High Dividend Yield ETF (VYM), JPMorgan Equity Premium Income ETF (JEPI), and Vanguard Dividend Appreciation ETF (VIG) present compelling trade-offs. This analysis evaluates these options through the lenses of yield sustainability, growth potential, and risk-adjusted returns, drawing on 2025 data to guide income-focused investors.

1. Yield vs. Risk: The FDVV and VYM Dilemma

For investors prioritizing yield, FDVV and VYM represent two distinct approaches. FDVV, with a 3.02% yield, emphasizes high-dividend stocks while filtering out those with unsustainable payouts, according to a report by Morningstar. However, its higher volatility-evidenced by a 5-year max drawdown of -20.17% and a beta of 0.82-comes at the cost of a 0.15% expense ratio. In contrast, VYM offers a lower yield (2.42%) but demonstrates superior risk control, with a max drawdown of -15.87% and a beta of 0.74 according to Nasdaq analysis. VYM's broader diversification across 566 stocks, including financial services (21%) and technology (18%), also mitigates sector-specific risks.

From a risk-adjusted return perspective, FDVV's Sharpe ratio of 1.10 outperforms VYM's 1.08, suggesting it generates better returns per unit of risk. Yet, VYM's 5-year cumulative return of 89.08% dwarfs FDVV's 40.51%, highlighting a trade-off between yield and capital appreciation. For conservative investors, VYM's stability and lower expense ratio (0.06%) make it a more attractive long-term holding.

2. High-Yield Strategies: JEPI's Covered-Call Approach

JPMorgan's JEPI stands out with an 8.17% yield, achieved through a unique strategy of selling call options on low-volatility stocks to generate income. This approach, however, limits capital appreciation, as the fund's 5-year return of 5.05% lags behind SCHD's performance. JEPI's Sharpe ratio of 0.58 further underscores its suboptimal risk-adjusted returns compared to FDVV and VYM.

While JEPI's payout ratio is listed as 0-indicating dividends are not tied to earnings-its strategy appeals to investors seeking predictable monthly income. However, the fund's reliance on options trading introduces complexity and potential liquidity risks, particularly in volatile markets. For those prioritizing yield over growth, JEPI remains a viable option but should be paired with complementary growth-oriented ETFs to balance the portfolio.

3. Growth-Enhanced Dividend Strategies: VIG's Focus on Dividend Appreciation

VIG, with a 1.6% yield, diverges from yield-centric models by emphasizing dividend growth. The fund invests in companies with at least 10 years of consecutive dividend increases, including large-cap leaders in technology and healthcare. This strategy has delivered a 5-year cumulative return of 76.50%, outpacing SCHD's growth while maintaining a Sharpe ratio of 0.83.

VIG's lower yield is offset by its defensive characteristics: a standard deviation of 15.47% and a diversified portfolio of 338 stocks. Its focus on dividend growth also aligns with long-term income sustainability, as companies with consistent payout histories are less likely to cut dividends during downturns. For investors seeking a balance between income and capital preservation, VIG offers a compelling middle ground.

4. Strategic Recommendations for 2025

The choice between these ETFs hinges on investor priorities:
- High Yield with Moderate Risk: FDVV and JEPI cater to income-focused investors, though JEPI's growth limitations and FDVV's volatility require careful consideration.
- Balanced Growth and Income: VIG and VYM provide a blend of capital appreciation and sustainable dividends, with VIG excelling in long-term performance and VYM offering cost efficiency.
- Risk-Adjusted Returns: FDVV's Sharpe ratio of 1.10 makes it the top performer in this category, but its higher expense ratio and drawdowns necessitate a growth-oriented market environment.

Conclusion

As 2025 unfolds, the landscape of dividend ETFs has evolved to accommodate diverse investor needs. While SCHD remains a benchmark, alternatives like FDVV, VYM, JEPI, and VIG offer tailored strategies for yield, growth, and risk management. By aligning these options with individual financial goals and risk tolerances, investors can construct resilient portfolios that capitalize on the strengths of each fund.