This year has been nothing like 2023 and 2024. In those two years, the S&P 500 (^GSPC -0.01%) shot up a whopping 53.2%.
In 2025, the S&P 500 made new all-time highs in February, then went down over 15% year to date (YTD) at one point in April, and is now down a little over 1% YTD at the time of this writing.
When markets are this volatile, it can be challenging to filter out noise and decide which companies or exchange-traded funds (ETFs) to put your hard-earned savings into. Allocate too much into growth stocks, and you may take on more risk than intended. Put too much into value and dividend stocks, and you could miss out on themes like cloud computing, artificial intelligence, and more.
Investors looking for balance could always keep it simple and go with an S&P 500 index fund or ETF. But in this day and age, there are plenty of ETFs to choose from so you can better align your investments with your risk tolerance and financial goals.
Here's why the Vanguard Dividend Appreciation ETF (VIG 0.46%) is an excellent choice for investors looking for a mix of growth and dividend stocks.
Image source: Getty Images.
Prioritizing dividend growth over dividend yield
The Dividend Appreciation ETF invests in companies across sectors with track records for growing dividends. The fund focuses less on dividend yield and more on earnings growth and a runway for future dividend increases.
One mistake investors often make when selecting dividend stocks is assuming that a high-yield dividend stock is more committed to its payout than a low-yield dividend stock. That can be true at times, but it isn't always the case.
For example, the top four holdings in the Dividend Appreciation ETF are Broadcom (NASDAQ: AVGO), Microsoft (NASDAQ: MSFT), Apple (NASDAQ: AAPL), and Eli Lilly (NYSE: LLY). All four stocks yield 1% or less, so they normally wouldn't be considered good dividend names. But their low yields have more to do with their outperforming stock prices than a lack of dividend raises.
Broadcom's stock price has jumped 636% in the last five years, and the company has boosted its dividend by over 80%. Eli Lilly stock is up 336%, and its dividend has more than doubled in five years. By comparison, a stable stalwart like Coca-Cola (NYSE: KO) has only increased its dividend by 24% in the last five years, but it's a better source of passive income than these names because it yields close to 3%.
Investors focused on supplementing income in retirement may prefer to go with a reliable, high-yield company with a recession-resistant business model like Coca-Cola or PepsiCo (NASDAQ: PEP), which has an even higher yield than Coke. But folks looking for earnings growth that supports a higher future dividend rather than a higher yield right now will probably like how the Vanguard Dividend Appreciation ETF is structured.
The ideal fund for investors seeking balance across equities
The Dividend Appreciation ETF isn't just in growth stocks, as other top 10 holdings include JPMorgan Chase, Visa, ExxonMobil, Mastercard, Costco Wholesale, and Walmart. In this vein, the fund does a good job of targeting industry leaders across stock market sectors. Because the fund has a lot of higher-yield names that are lower-weighted holdings, it averages out to a 1.8% yield for the fund -- which is better than the 1.3% yield for the Vanguard S&P 500 ETF (VOO 0.04%).
Another advantage of the fund is that it isn't particularly top-heavy. For example, no company has higher than a 4.2% weighting, whereas Microsoft, Nvidia, and Apple alone combine for 18.6% of the Vanguard S&P 500 ETF.
A good way of comparing the Dividend Appreciation ETF to other low-cost ETFs is by looking at sector weights. Here's how the Dividend Appreciation ETF stacks up against some of Vanguard's largest funds by net assets.
|
Sector |
Vanguard Dividend Appreciation ETF |
Vanguard S&P 500 ETF |
Vanguard Growth ETF (VUG 0.06%) |
Vanguard Value ETF (VTV 0.17%) |
|---|---|---|---|---|
|
Information Technology and Communication Services |
23.4% |
39.7% |
57.3% |
9.7% |
|
Financials |
22.5% |
14.4% |
2.9% |
22.8% |
|
Healthcare |
17.3% |
10.8% |
6.5% |
15.6% |
|
Consumer Staples |
11.3% |
6.2% |
0.3% |
9.8% |
|
Industrials |
11.1% |
8.5% |
9.7% |
15.3% |
|
Consumer Discretionary |
5.5% |
10.4% |
19.3% |
8.7% |
|
Materials |
3.4% |
2% |
0.5% |
2.4% |
|
Energy |
2.8% |
3.2% |
0.7% |
6.5% |
|
Utilities |
2.7% |
2.6% |
0.2% |
6.1% |
|
Real Estate |
0% |
2.2% |
1.6% |
3.1% |
Data source: Vanguard.
As you can see in the table, the Dividend Appreciation ETF is unique because it has similar weightings to the Vanguard Value ETF in sectors like financials, healthcare, and consumer staples, but it has significantly more information technology and communications and less concentration in traditionally high-yield value sectors like energy and utilities.
The Dividend Appreciation ETF has an expense ratio of 0.05%, which is slightly higher than the 0.04% for the Value and Growth ETFs and the 0.03% for the S&P 500 ETF. But that subtle difference only makes a big impact on an ultra-large scale. Even $100,000 invested in the Vanguard Dividend Appreciation ETF versus the Vanguard S&P 500 ETF would be just $20 more in fees per year. So investors should go with the fund they like best rather than get bogged down by minor differences in fees.
One of the best ETFs to buy now
The Dividend Appreciation ETF checks all the boxes for a plug-and-play tool for putting capital to work no matter what the market is doing. The fund isn't top-heavy, so investors don't have to worry about outsized exposure to a handful of companies. The fund doesn't overly concentrate on certain sectors. It has outsized exposure to some, but not all, value-focused sectors. And it still has significant exposure to growth stocks, with its largest positions being tech stocks like Broadcom, Microsoft, and Apple.
All told, the Dividend Appreciation ETF may be a better buy than other low-cost ETFs for investors looking for a balance across different market themes rather than choosing between growth or value.
