Generating Decades of Passive Income: A Comparative Analysis of VIG, SCHD, and VPU

In the pursuit of long-term passive income, dividend-focused index funds have emerged as a cornerstone strategy for investors seeking compounding returns and financial stability. Among the most prominent exchange-traded funds (ETFs) in this category are the Vanguard Dividend Appreciation ETF (VIG), the Schwab U.S. Dividend Equity ETF (SCHD), and the Vanguard Utilities ETF (VPU). Each offers distinct advantages in terms of dividend yield, cost efficiency, and portfolio composition. This analysis evaluates these funds to determine their suitability for building a resilient income-generating portfolio.

1. VIG: The Growth-Oriented Dividend Powerhouse

The Vanguard Dividend Appreciation ETF (VIG) is designed for investors prioritizing companies with a proven track record of increasing dividends. As of December 2025, VIG has a dividend yield of 1.60% according to data and an expense ratio of 0.05%, making it one of the most cost-effective options in its category as reported. Its top holdings include technology and financial giants like Broadcom (6.01%), Microsoft (5.19%), and JPMorgan Chase (4.06%) as detailed, reflecting a diversified exposure to high-quality, growth-oriented firms.

Historically, VIG has outperformed many peers, delivering a 14.9% YTD return in 2025 and a 11.9% annualized return over the past year according to performance data. Over the long term, it has posted a 9.52% annualized return from 2007 to 2025, outpacing the S&P 500 by 1.15 percentage points according to Morningstar analysis. This performance is underpinned by its focus on the S&P U.S. Dividend Growers Index, which requires companies to have at least a 10-year history of raising dividends as defined. While its yield is modest compared to sector-specific funds, VIG's emphasis on growth and stability makes it ideal for investors seeking compounding potential over decades.

2. SCHD: The High-Yield Dividend Staple

For investors prioritizing immediate income, the Schwab U.S. Dividend Equity ETF (SCHD) stands out with a dividend yield of 4.13% as of November 2025 according to Morningstar, one of the highest among broad-market dividend ETFs. With an expense ratio of 0.07%, SCHD balances cost efficiency with a focus on large-cap U.S. equities that have demonstrated consistent dividend growth as reported. Its portfolio includes a mix of consumer defensive and technology stocks, such as Procter & Gamble and Microsoft, ensuring a blend of stability and innovation.

SCHD's historical performance is equally compelling. It has delivered a 5-year annualized return of 9.46% according to Schwab data and has increased its dividend payout every year since its inception in 2011 as documented. The fund's 2025 YTD return of 5.59% according to total return analysis reflects its resilience in a volatile market, supported by its focus on the Dow Jones U.S. Dividend 100 Index. While its yield is attractive, investors should note that its 5-year total return (61.73%) lags slightly behind VIG's 60.24% according to performance comparisons, suggesting a trade-off between yield and growth.

3. VPU: The Utilities Sector's Steady Contributor

The Vanguard Utilities ETF (VPU) caters to investors seeking exposure to the utilities sector, which is traditionally known for its defensive characteristics and consistent payouts. As of December 2025, VPU offers a dividend yield of 2.61% according to dividend data and an expense ratio of 0.09%, slightly higher than VIG and SCHD but still competitive as reported. Its top holdings include utilities heavyweights like NextEra Energy (10.32%), Southern Company (6.77%), and Constellation Energy (6.72%) as detailed, which benefit from stable cash flows and regulatory frameworks.

VPU's performance is solid but more sector-dependent. It has delivered a 3-year annualized return of 10.1% according to performance data and a 17.3% YTD return in 2025 according to dividend tracking, outperforming its 5-year average of 10.0% as reported. However, its concentrated portfolio exposes it to sector-specific risks, such as regulatory changes or energy price fluctuations. For investors comfortable with utilities' lower growth potential but seeking predictable income, VPU provides a compelling option.

Comparative Analysis: Key Considerations

• Dividend Yield: SCHD (4.13%) > VPU (2.61%) > VIG (1.60%) according to Morningstar data.
• Expense Ratio: VIG (0.05%) < SCHD (0.07%) < VPU (0.09%) according to Vanguard reporting.
• Portfolio Diversification: VIG offers the broadest exposure (technology, financials, consumer staples), while VPU is concentrated in utilities. SCHD strikes a middle ground with a mix of consumer defensive and tech stocks as described.
• Historical Performance: VIG leads in long-term growth (9.52% annualized since 2007 according to Morningstar analysis), while SCHD and VPU offer more modest but stable returns.

Conclusion: Tailoring the Strategy to Investor Goals

The choice between VIG, SCHD, and VPU hinges on an investor's priorities. SCHD is ideal for those prioritizing immediate income, given its high yield and consistent dividend growth. VIG suits investors focused on long-term capital appreciation and compounding, leveraging its low cost and exposure to high-quality growth stocks. VPU appeals to those seeking defensive, sector-specific income, albeit with higher volatility tied to utilities.

For a balanced approach, a diversified portfolio incorporating all three ETFs could optimize both yield and growth. However, investors must remain mindful of market conditions and sector dynamics. As always, consulting a financial advisor to align these tools with personal financial goals is prudent.