With inflation concerns swirling in the minds of fixed income investors, getting an added dose of yield spurred popularity for dividend-focused exchange traded funds (ETFs).
2021 saw an influx of capital into dividend ETFs amid growing inflation worries and the prospect of higher interest rates. The U.S. Federal Reserve is expected to raise rates this year — it’s just a matter of guessing exactly how hawkish the Fed will be.
In the meantime, investors can look to ETFs that are not solely focused on getting maximum yield. One in particular to consider is the Vanguard Dividend Appreciation Index Fund ETF Shares (VIG).
“VIG has outperformed in the last three years by over 300 basis points by favoring those more growth-oriented sectors including technology as opposed to the above-average yields that you’d find within VYM,” said CFRA’s head of ETF and mutual fund research Todd Rosenbluth, who referenced the Vanguard High Dividend Yield Index Fund ETF Shares (VYM).
When it comes to yield, VYM goes for the heavy hitters. On the other end of the spectrum, VIG goes for yield that can hit constantly over time.
No One-Hit Wonders
Looking under the hood of VIG, it isn’t comprised of companies that are essentially one-hit wonders when it comes to yield. VIG screens for dividend-paying companies that can sustain that level of payment over time.
Summarily, IG 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 advisor 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 S&P U.S. Dividend Growers Index.
- Takes a passively managed, full-replication approach.
- Remains fully invested.
- Focuses on large-cap equity, emphasizing stocks with a record of growing their dividends year over year.
- Has low expenses that minimize net tracking error.
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