This Dividend ETF Helps Investors Sleep at Night

Heading into 2016, expectations were in place for slower S&P 500 dividend growth, more negative dividend action from the energy sector and higher interest rates. None of those factors are particularly appealing for dividend investors, but some dividend exchange traded funds have been solid bets in early 2016.

For example, the Vanguard Dividend Appreciation ETF (NYSEArca: VIG), the largest dividend exchange traded fund trading in the U.S., has posted a year-to-date decline that is just half as bad as the S&P 500’s.

VIG has established that massive following for several reasons, including a paltry 0.1% annual fee, which makes it less expensive than 90% of rival funds, and a mandate that requires constituent companies to have dividend increase streaks of at least 10 years.

There are over 500 ETFs that offer better yields than 10-year U.S. Treasurys, but with the recent yield spike that has taken 10-year yields over 2.4%, VIG is not one of those 500 ETFs. The Vanguard fund has trailing 12-month yield of 2.12%, or 30 basis points below where 10-year yields closed on Tuesday. Still, VIG holds allure for retirees and those planning for retirement. [Retirees May Need More Stock ETFs to Meet Income Needs]

The difference between U.S. equity dividend yields and government bonds can be used as a proxy for valuation comparison between the two assets. On average over the past year, the yield on 10-year Treasuries exceeded that of the S&P 500 dividends by 7.7 basis points.