Dividends can easily boost your portfolio's balance over the years. You get a steady stream of cash that enables you to be less reliant on the stock's performance. You can reinvest that dividend income or simply use it to help pay bills or contribute to your savings.
And investing in a diversified exchange-traded fund (ETF) can be safer than picking individual dividend stocks. That way you're less vulnerable if a particular company struggles and needs to cut or suspend its payout unexpectedly. And when it comes to dividends, you want to prioritize safety to ensure those recurring payments continue, because there's nothing worse for income investors than learning that a stock they own has stopped or reduced its dividend. Not only can that hurt your cash flow, it can also send the stock into a tailspin.
One of the better dividend-focused ETFs you can invest in today is the Vanguard Dividend Appreciation Index Fund ETF (VIG -0.23%).
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The ETF has plenty of diversification and low fees
The Vanguard Dividend Appreciation Index Fund ETF yields around 1.9%, which is a better payout than you'd get with the average S&P 500 stock, which yields 1.3%. And with a light expense ratio of just 0.05%, the ETF won't be taking a big chunk out of your potential returns. On a $10,000 investment, that amounts to just $5 in fees.
In return, you're getting exposure to 338 stocks (as of April 30). Tech, financials, healthcare, industrials, and consumer staples are the five largest sectors of the ETF, accounting for approximately 85% of the entire portfolio. And with blue chip stocks such as Microsoft, JPMorgan Chase, Walmart, and many other big names among the ETF's top 10 positions, you don't have to worry about taking on a big risk with this investment.
A top fund to simply buy and hold
Investing in this ETF over the long term makes a lot more sense than just holding individual stocks, since you won't have to worry about closely tracking company- and industry-specific developments that might affect your investment or dividend income.
Over the past 10 years, the fund has underperformed the S&P 500 based on its total returns (which include dividend payments). However, investors may get a bit more safety with this type of investment, given its focus on strong and growing dividend stocks, as the ETF tracks the S&P U.S. Dividend Growers Index.
VIG Total Return Level data by YCharts
While you might miss out on some returns in good years by going with this ETF rather than the broader S&P 500, the fund can make for a less volatile investment overall. This year, for instance, its total returns since the start of the year are around 2.4%, versus 1.9% for the S&P 500. Amid economic uncertainty, this can be a safer option. While you aren't guaranteed to avoid losses, you may end up in a better position to outperform the market.
If you're looking for a good investment to hang on to for the next few years due to uncertain macroeconomic conditions, or if you just want a good income-generating investment you can buy and forget about, this Vanguard ETF makes for a solid option to consider adding to your portfolio today.
