At any given time, several stocks stand out as good buys. But deciding which companies to invest in and how much to allocate toward each stock can be difficult.
Exchange-traded funds (ETFs) relieve the pressure of deciding by diversifying assets across dozens, hundreds, or even thousands of stocks. The Vanguard Value ETF (VTV 0.40%) has just a 0.04% expense ratio, or 4 cents for every $100 invested, making it a great way to gain exposure to over 300 value stocks.
Broadcom (AVGO +0.88%), Procter & Gamble (PG +0.12%), and PepsiCo (PEP 0.68%) are all top holdings in the fund. Here's what makes each company a buy now, and why the ETF is a simple yet effective way to gain exposure to these companies and so many more.
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Broadcom is a chip stock with a growing dividend
Despite posting phenomenal second-quarter fiscal 2024 results in June and issuing a 10-for-1 stock split on July 15, Broadcom has since pulled back and is down around 15% from its all-time high. Still, the stock price has increased severalfold in recent years. But it could still be worth buying now.
Like many other semiconductor companies, Broadcom benefits from increased demand for artificial intelligence (AI) chips and mega-scale data centers. The company doesn't make graphics processing units like Nvidia does, but it does make custom accelerators, networking devices, switches, and various hardware components that are instrumental in data centers and global connectivity.
The company's diversified business means that it is likely better positioned for a cyclical downturn in the industry, whereas pure-play chip stocks could be more volatile. Broadcom also has a reasonable valuation, with a forward price-to-earnings (P/E) ratio of 30.2 and a dividend yield of 1.5%.
The company began paying a dividend in fiscal 2011 and has raised it every year since then. The raises have been sizable, too -- including a 14% increase announced in December.
Add it all up, and Broadcom is a more value-orientated way to approach investing in the chip space and AI.
Procter & Gamble's capital return program makes up for its slow growth
Procter & Gamble sold off by as much as 7% recently after reporting its fourth-quarter and full-year 2024 results. The consumer staples company reported a mere 2% increase in both sales and diluted earnings per share (EPS) as measured by generally accepted accounting principles (GAAP). Organic sales were up 4%, but shipment volumes were flat.
Volumes continue to be the biggest headwind for P&G. Over the last few years, it has exhibited exemplary pricing power even in the face of stagnating volumes. But fiscal 2024 results indicate that price increases have limits as cost-conscious consumers push back.
Management's fiscal 2025 guidance indicates that the company is confident it can grow faster but is still a ways from the level of sales growth investors might expect in the longer term. Full-year organic growth is expected to be 3% to 5%, and for diluted EPS to grow 10% to 12%.
Despite the slow growth, P&G is forecasting $10 billion in dividend payments and the repurchase of $6 billion to $7 billion in stock. The company is a Dividend King with 68 consecutive years of payout increases and has reduced its outstanding share count by 12.8% over the last 10 years.
Its growth could be disappointing for now. But Procter & Gamble still stands out as one of the safest dividend stocks on the market. With a P/E just under 27, it isn't dirt cheap, but its quality is worth paying up for.
PepsiCo checks all the boxes that make a safe dividend stock
Despite moderate growth and dividend raises, PepsiCo is around the same price today as it was three years ago. Growth has ground to a halt as the company deals with a selective consumer. But Pepsi has the makings of a near-perfect dividend stock to buy and hold for decades to come.
It is an incredibly diversified company, with over 600 food products and over 600 beverages. Notable brands include the flagship Pepsi name, Gatorade, Quaker, Lay's, Cheetos, Mountain Dew, Doritos, Rockstar Energy, Pure Leaf tea, Pasta Roni and Rice-A-Roni, Jack Link's, and more.
With this diversity, it hits a lot of different markets in food and beverages. The company's global reach, paired with its variety of brands, gives it the ability to see which products work best in different markets and then adjust its marketing and distribution strategy accordingly.
In the last 20 years, PepsiCo has tripled revenue while maintaining a low- to high-teens operating margin. The business isn't blowing expectations out of the water, but it is steady and resistant to recessions. With no cyclicality in its business, Pepsi can accurately forecast results, which helps with capital allocation and its dividend.
The payout has more than doubled over the last decade and currently yields 3.1%. Like P&G, PepsiCo is a Dividend King with over 50 consecutive years of dividend increases. With a 25.1 P/E, it offers a nice blend of income and value and is an excellent choice for risk-averse investors focused on generating passive income.
Casting a wide net
The Vanguard Value ETF is a low-cost way to invest in value stocks across different sectors in the market. The largest holding is Broadcom, but with just a 3.6% weighting, the fund isn't concentrated in only its top holdings. And while the fund has just 1.9% in P&G and 1.1% in Pepsi, it also includes many of their peers.
For example, the consumer staples sector makes up 9.2% of the fund and includes stocks like P&G, PepsiCo, Coca-Cola, Walmart, and more. The fund also has a large concentration in financials, healthcare, and industrials.
All told, the Vanguard Value ETF is an ultra-low-cost way to invest in top value stocks and boost your passive income stream.
