Fixed income investors fretting over whether to chase yield or quality can capture both with the Vanguard Dividend Appreciation Index Fund ETF Shares (VIG).
“It’s hard to criticize markets for setting records seemingly every other day, but all-time highs do pose something of a challenge for yield-hungry income investors: High-quality stocks with dividends that offer ample yields are in increasingly short supply,” a Kiplinger article said.
“As dividend (and bond) investors know all too well, prices and yields move in opposite directions,” the article added. “With the S&P 500 gaining 37% over the past 52 weeks – not to mention two consecutive quarters of negative dividend growth – the yield on the benchmark index is plumbing depths not seen for two decades.”
VIG seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time. The fund employs an indexing investment approach designed to track the performance of the Nasdaq US Dividend Achievers Select Index, which consists of common stocks of companies that have a record of increasing dividends over time.
The adviser 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.
Overall, VIG:
- Seeks to track the performance of the NASDAQ US Dividend Achievers Select Index (formerly known as the Dividend Achievers Select Index).
- Provides a convenient way to track the performance of stocks of companies with a record of growing their dividends year over year.
- Follows a passively managed, full-replication approach.
Chasing Quality Over Yield
The current low-yield environment could be spurring investors into a cat-and-mouse game of chasing yield. Yet higher yield doesn’t always equate to the best income opportunities.
“Although income investors should be wary of “chasing yield” in any market environment, that admonishment goes double today. After all, it’s an especially tempting risk to take when yields are from hunger,” the Kiplinger article said.
“True, there’s no shortage of stocks with dividends offering high-single-digit percent and even double-digit percent yields, but a too-high yield can sometimes be a sign that the underlying company is in trouble,” the article continued. “As such, it’s imperative that investors keep a keen eye on the stability and reliability of their dividend-paying stocks – not just the generosity of their payouts.”
For more news, information, and strategy, visit the Fixed Income Channel.