The Most Important Difference Between Vanguard Dividend Appreciation ETF and Vanguard High Dividend Yield ETF

There is really no "right" way to invest, since every person has their own unique needs and desires. That is just as true with dividend investing as it is with investing more broadly. That's why it is so important for investors to understand what an exchange-traded fund (ETF) is doing before buying it, because it has the word "dividend" in its name.

Comparing the Vanguard High Dividend Yield ETF (NYSEMKT: VYM) to the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) helps to explain why, but it will help to start with a third popular "dividend" ETF first.

One of the best examples of an ETF that misleadingly has the word "dividend" in its name is the WisdomTree US Quality Dividend Growth Fund (NASDAQ: DGRW). The fund starts out by looking only at the stocks within the WisdomTree U.S. Dividend Index. That index is, indeed, filled with dividend stocks, but the only requirement to get on the list is to pay a dividend. When it comes to the ETF, the actual selection process is based on growth and quality factors like long-term earnings growth expectations and historical rates of return on equity.