An Income Fund That Rewards the Patient Investors

Jim Woods

Jim Woods has over 20 years of experience in the markets from working as a stockbroker, financial journalist, and money manager.

This week’s exchange-traded fund, the Vanguard Dividend Appreciation ETF (VIG), focuses on a strategy based neither on value nor growth investing. Instead, VIG selects U.S. companies that have appreciating dividend yields, as its name implies.

Specifically, VIG holds companies that have increased their annual dividends for 10 or more consecutive years, known to some as the “dividend achievers.” This distinguishes VIG from many other dividend funds such as the Vanguard High Dividend Yield ETF (VYM), which typically focuses on stocks that have the highest current yield.

Dividends not only provide a steady stream of income, they also reduces a portfolio’s risk profile. This his helped VIG avoid some of the market’s weakness from time to time. For example, during the 2008 crisis, the fund decreased by a little over 30% while the S&P 500 shed over 37%.

VIG is one of the most popular ETFSs in the U.S. market, managing $24.55 billion in total assets, and has an average daily trading volume of $51.89 million. VIG is fully invested and employs a passively managed, full-replication strategy that focuses on large equities, with the philosophy that income-producing equities will outperform other types of equities over the long term.

VIG has a distribution yield of 2.09% and a low expense ratio of 0.08%, making the fund cheap to hold. It pays a quarterly distribution. Year to date, the fund has returned 8.08%, compared to the S&P 500’s 8.99%. Over the past 12 months, VIG has risen by about 11%.

Top five holdings are Microsoft Corp. (MSFT), 4.38%; Johnson & Johnson (JNJ), 4.18%; PepsiCo Inc. (PEP), 4.07%; 3M Co (MMM), 3.32%; and Medtronic PLC (MDT), 3.19%.

The fund is 28.75% invested in industrials and 17.16% in health care. Other areas of focus are consumer defensive, technology and financial services.

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For those who are looking for appreciating long-term income, the Vanguard Dividend Appreciation ETF (VIG) may be worth adding to your portfolio.

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

 

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