VYM vs. CGDV: Balancing Dividend Stability and Aggressive Growth in a Rising Rate Environment

For income-focused investors navigating a rising rate environment, the choice between the Vanguard High Dividend Yield ETF (VYM) and the Capital Group Dividend Value ETF (CGDV) hinges on a delicate balance of dividend stability, growth potential, and risk-adjusted returns. While both funds target high-dividend-paying equities, their divergent strategies and performance metrics reveal distinct trade-offs in an era where interest rates remain elevated.

Performance and Risk-Adjusted Returns

In the 2023–2025 period, CGDV has outpaced VYM in total returns, delivering a 19.84% year-to-date (YTD) gain and a 20.64% trailing twelve-month (TTM) return compared to VYM's 12.08% YTD and 14.26% TTMCGDV Performance History & Total Returns^[4]. This outperformance is reflected in CGDV's superior risk-adjusted metrics: a Sharpe ratio of 1.33 and a Sortino ratio of 1.92, both exceeding VYM's Sharpe ratio of 1.04–1.07CGDV vs VYM - Comparison tool | Tickeron^[2]. These figures suggest CGDV generates higher returns per unit of risk, particularly in mitigating downside volatility.

However, VYM's lower expense ratio of 0.06% versus CGDV's 0.33%CGDV vs VYM - Comparison tool | Tickeron^[2] offers a cost advantage, which can compound over time for long-term investors. VYM's beta of 0.83–0.84Vanguard High Dividend Yield ETF (VYM) - Stock^[3]—indicating lower volatility than the market—further underscores its defensive profile, while CGDV's beta of 0.91Vanguard High Dividend Yield ETF (VYM) - Stock^[3] suggests slightly higher sensitivity to market swings.

Dividend Yield and Growth Trajectories

VYM's 2.54% dividend yieldCGDV vs VYM - Comparison tool | Tickeron^[2] provides a more immediate income stream, appealing to investors prioritizing cash flow. In contrast, CGDV's 1.36% yieldCGDV vs VYM - Comparison tool | Tickeron^[2] is lower but paired with a 33.29% three-year dividend growth CAGRCGDV vs VYM - Comparison tool | Tickeron^[2], signaling a focus on long-term appreciation. This divergence reflects their strategies: VYM emphasizes stability through large-cap blue-chips (e.g., ExxonMobil, Broadcom), while CGDV targets undervalued dividend growers, albeit with a smaller net asset base ($21.8B vs. VYM's $79.5B)CGDV vs VYM - Comparison tool | Tickeron^[2].

Yet, CGDV's recent dividend performance has been mixed. Its 1-year dividend growth rate is negative (-13.64%)CGDV vs VYM - Comparison tool | Tickeron^[2], a red flag in a rising rate environment where income consistency is paramount. VYM, by contrast, has maintained a 10.78% 10-year CAGRVanguard High Dividend Yield ETF (VYM): The Dividend …^[5], reinforcing its reliability.

Sector Exposure and Macro Risks

VYM's heavy allocations to technology (30%) and financials (14.5%)Can Vanguard’s High-Yield VYM ETF Survive a Stock Market Meltdown?^[1] expose it to sector-specific risks, particularly in a rising rate climate where financials often benefit but tech stocks may falter. CGDV's diversified approach, though less concentrated, may lack the same tailwinds. However, VYM's defensive characteristics—evidenced by a -8.24% drawdown in 2025 vs. the S&P 500's -13.57%Can Vanguard’s High-Yield VYM ETF Survive a Stock Market Meltdown?^[1]—highlight its resilience during downturns.

Strategic Implications for Income Investors

For investors prioritizing risk-adjusted returns and growth, CGDV's superior Sharpe ratio and total returns make it an attractive option, despite its higher costs and lower yield. Its focus on undervalued dividend growers aligns with a long-term, compounding-oriented strategy. Conversely, income-focused investors seeking stability may prefer VYM's higher yield, lower fees, and defensive beta, even if it means accepting slightly lower growth and a more volatile sector mix.

In a rising rate environment, the optimal choice depends on an investor's risk tolerance and income needs. Those willing to tolerate short-term volatility for higher returns and growth potential may lean toward CGDV, while those prioritizing consistent cash flow and downside protection may find VYM's profile more compelling.