The Vanguard Dividend Appreciation ETF (NYSEArca: VIG) is the largest dividend exchange traded fund trading in the U.S. In addition to its low fee, one of the lowest among U.S. dividend ETFs, investors love VIG for its dividend consistency.
In a sign that plenty of VIG’s 180 holdings have dividend increase well in excess of 10 years, some of the fund’s marquee holdings, including Dow components Coca-Cola (NYSE: KO), Johnson & Johnson (NYSE: JNJ) and Procter & Gamble (NYSE: PG), are dividend aristocrats. Dividend aristocrats are those S&P 500 members that have increased dividends for at least 25 consecutive years.
VIG targets U.S. stocks that have increased dividends on a regular basis for at least 10 consecutive years. Company stocks that issue high dividend yields can be masking their distressed books or may not be sustainable and are heading for dividend cuts. Consequently, these quality dividend ETFs try to limit the impact of these value traps by requiring a history of sustainable dividend growth.
VIG tracks the NASDAQ US Dividend Achievers Select Index (formerly known as the Dividend Achievers Select Index).
“This index is a subset of the NASDAQ US Broad Dividend Achievers Index and is administered exclusively for Vanguard by NASDAQ. The fund attempts to replicate the target index by investing all, or substantially all, of its assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index,” according to Vanguard.
Given President Donald Donald Trump’s campaign promises, the markets believe a Trump administration could foster growth and fuel inflationary pressures, adding to speculation that the Fed would hike interest rates to rein in an overheating economy.
Consequently, many expect higher yields and a steeper yield curve are on the horizon. While income seekers may welcome the prospects, bond market yields may continue to remain in the low end of the spectrum.
Many of VIG’s sector allocations could actually prove sturdy in a rising rates environment whereas some high dividend strategies could be vulnerable.
“VIG is run with an intelligent design and it emphasizes stronger companies. Even if the companies may be expensive today, it’s a good place for investors to buy in the event the market starts to decline and there’s a comfortable price point for entry,” according to a Seeking Alpha analysis of VIG.
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