With a roughly 1.7% yield as of this writing, the Vanguard Dividend Appreciation ETF (VIG +2.42%) isn't exactly the highest-paying dividend ETF. Far from it.
However, the point of this ETF isn't to generate current income. Instead, it invests in an index of stocks that are likely to consistently raise their dividends over time, creating a growing income stream.
Why long-term investors should consider the Vanguard Dividend Appreciation ETF
Specifically, the Vanguard Dividend Appreciation ETF tracks the S&P U.S. Dividend Growers Index, which consists of large-cap stocks that have an established track record of growing their dividends every year. It is a weighted index, meaning that certain stocks make up more of the assets than others, and there are 337 stocks altogether.
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Like most Vanguard index funds, this one has an extremely low fee structure with an expense ratio of 0.05%, which means that for every $10,000 in assets, your annual investment costs will be just $5. To be clear, this isn't a fee you have to pay -- it will simply be reflected in the performance over time.
NYSEMKT: VIG
Key Data Points
Because it isn't focused on stocks with a high current yield, it has more exposure to fast-growing companies than most dividend ETFs. Just to name one example, the top holding of the Vanguard Dividend Appreciation ETF is Broadcom (AVGO +4.90%), which has a dividend yield of only about 1% today, but has increased its payout by 82% over the past five years alone. Microsoft (MSFT +0.48%), with its 23-year streak of dividend increases, is the No. 2 holding.
The point is that although stocks like these don't have the highest dividend yields today, they could pay much more in five years, 10 years, 20 years, and beyond. If you're still a decade or more away from relying on your stock portfolio for income, the Vanguard Dividend Appreciation ETF can help you set up a future income stream without sacrificing near-term growth potential.
