VIG, the largest dividend-related ETF on the market, tracks U.S. stocks that have increased dividends on a regular basis for at least 10 consecutive years. Investors may also consider consistent dividend growers as a way to gain exposure to this group of quality companies as dividend growers and high quality stocks share a number of similar characteristics.
“Vanguard Dividend Appreciation’s yield wouldn’t even impress a bond investor right now; at 2.1%, it’s only basis points better than the S&P 500. But the important thing to remember about VIG or any dividend growth investment is yield on cost. The idea is that over time, as the dividend payments of VIG’s holdings go up, so will VIG’s overall payments, and thus the yield on your original purchase,” reports Forbes.
VIG could also be useful if inflation rises. Dividend growth as a means of trumping inflation could and arguably should serve to highlight the advantages of the ETFs that focus on dividend growth stocks, such as VIG. That group is comprised of well-established ETFs that emphasize dividend increase streaks as well as a new breed of funds that look for sectors chock full of stocks that have the potential to be future sources of dividend growth.
“Let’s say you bought into VIG at the start of 2007 at around $54. Based on the 72.58 cents it paid out, you enjoyed a yield of just 1.3% that year. However, in 2015, you would be sitting on a yield of well more than double that – 3.4% — based on its $1.85 in annual dividends. (Not to mention about 56% in capital gains since then),” adds Forbes.
For more information on dividend stocks, visit our dividend ETFs category.