Stock Market News

An Income Fund That Rewards the Patient Investors

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%.

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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.

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.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Successful Investing, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.