Key Points
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The Vanguard Dividend Appreciation ETF has rewarded long-term investors.
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It has delivered admirable performance, beating out a key benchmark.
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It’s also the largest ETF in the dividend category and charges very low fees.
Dividend investing is a prime example of a strategy in which long-term perspective and patience can be rewarded. Investors who have the advantage of time can allow payouts from their dividend stocks or exchange-traded funds (ETFs) to compound by reinvesting those dividends, potentially creating substantial stakes when it’s time to retire.
Of course, a payout isn’t a promise that a stock or ETF will deliver the goods in terms of performance, meaning investors opting for individual equities need to perform some due diligence. The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG), the largest fund in the dividend ETF category, makes life easier for dividend investors.
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The word “Dividends” written in black ink on blue paper next to a roll of cash.
This Vanguard ETF is proving to be a long-term dividend winner. Image source: Getty Images.
This vaunted Vanguard dividend ETF also puts the odds of success on investors’ sides by emphasizing payout growth. It tracks the S&P U.S. Dividend Growers index, which mandates that member companies increase their payouts for at least 10 years. Speaking of 10 years, over the past decade, just three dividend ETFs have outperformed this Vanguard juggernaut. That’s it. Just three in a heavily populated ETF segment.
Lean on this ETF for reliable dividend growth
Adding to this Vanguard ETF’s impressive 10-year run is the following nugget: During that span, the fund delivered annualized returns of 13.63%, well ahead of the 11.59% notched by the S&P 500 Dividend Aristocrats® index, which holds S&P 500 components with dividend increase streaks of at least 25 years. (Dividend Aristocrats® is a registered trademark of Standard & Poor’s Financial Services LLC.)
That’s not the only reason this is one of the top Vanguard ETFs for equity-income investors. With a dividend yield of just 1.65%, this fund isn’t going to win the yield contest at the ETF Fair, but that low number underscores a high level of safety. That is to say, this ETF’s methodology helps investors avoid yield traps and potential dividend offenders.
Another point in favor of this ETF is its utility. With 338 domestic large-cap stocks, it can serve as a complement or alternative to basic broad-market ETFs or index funds. Investors with significant exposure to growth stocks can potentially mitigate some of that risk while boosting their income profiles by adding this Vanguard fund to their respective mixes.
A cost-effective dividend ride
Like so many Vanguard ETFs, this dividend fund is proof positive that investors don’t have to pay up for a good thing. It charges just 0.04% per year, or $4 on a $10,000 investment.
Alone, that might be enough to interest cost-conscious investors. Still, it’s worth noting that among the 10 best-performing dividend ETFs over the past decade, this Vanguard fund is by far the most cost-effective. Some of the other stalwarts on that list have annual fees that are 7, 9, or nearly 12 times higher than what the Vanguard dividend ETF charges.
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Todd Shriber has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.
