A Closer Look at Vanguard Dividend Appreciation ETF

April 12th at 6:43am by Tom Lydon

High-yield investments options have been all the rage with many seeking bond alternatives to boost income needs. However, investors should not forget exchange traded funds that track well-established, solid dividend stocks.

For example, the Vanguard Dividend Appreciation ETF (NYSEArca: VIG) tracks an index of companies that have raised dividends in the last 10 straight years. The fund includes component holdings that are most likely to provide sustained growth, leaning toward large names with a global footprint. VIG has a 0.13% expense ratio. [A Vanguard Dividend ETF with a Focus on Quality]

“The fund’s index provider, Mergent, weeds out firms that fail its financial strength screens,” Samuel Lee, an ETF strategist at Morningstar, said in an analysis of the fund. “The result is quality rather than a high yield. Whereas many dividend-focused funds concentrate in smaller value companies, this fund shades slightly toward growth.”

VIG’s underlying NASDAQ US Dividend Achievers Select Index was first created by Mergent, but the indexing business has been acquired by the NASDAQ OMX Group (Nasdaq: NDAQ) last year.

Sector allocations include basic materials 7.4%, consumer cyclical 12.2%, financial services 6.3%, telecom services 0.1%, energy 10.5%, industrials 25.5%, technology 4.5%, consumer defensive 26.5%, healthcare 5.4% and utilities 1.6%.

Top holdings include Wal-Mart 4.2%, Cocoa-Cola 4.0%, Procter & Gamble 3.9%, PepsiCo 3.9% and Chevron 3.8%.

“These are companies with sustainable business models and rock-solid balance sheets,” Lee said in a Wall Street Journal article. [Breaking Down a Pair of Vanguard Dividend ETFs]

While VIG has a 2.17% dividend yield, similar to that of the Vanguard S&P 500 ETF (NYSEArca: VOO), the dividend ETF has outperformed the S&P 500 ETF on a total return basis, with less volatility, over the past five years.

“We see VIG as a way to take advantage of the strong long-term track record of investing in dividend-paying stocks, without as many of the pitfalls,” Greg Peterson, investment research director at Ballentine Partners, said in the article. “It’s a more defensive way to play blue-chip stocks.”

Vanguard Dividend Appreciation ETF

For more information on dividends, visit our dividend ETFs category.

Max Chen contributed to this article.

Updated to include information about VIG’s underlying index.

The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.

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