If you're looking for an easy way to invest, exchange-traded funds (ETFs) are a good option. These investments combine a selection of stocks into one ticker, making it a simple way to get exposure to a group of stocks that track an index or follow another theme like a sector, region, or investing style.
S&P 500 index funds are among the most popular ETFs and for good reason. The S&P 500, which invests in 500 of the top U.S.-listed companies, as chosen by S&P Global, has a long track record of delivering results and has even outperformed most hedge funds.
However, dividend investors may be disappointed with the S&P 500's current dividend yield at just 1.1%, which is around an all-time low for the SPDR S&P 500 ETF, which began in 1993.
Another option, if you're seeking a higher yield, is the Vanguard Dividend Appreciation ETF (VIG +0.48%), which offers a modest dividend yield of 1.6%, but is stocked with dividend growth stocks. Let's take a look at a few key facts you should know about the Vanguard Dividend Appreciation ETF if you're thinking about buying it.
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What's in the Vanguard Dividend Appreciation ETF?
The Vanguard Dividend Appreciation ETF aims to track the performance of the S&P U.S. Dividend Growers index. As of Oct. 31, the fund owns 338 stocks with a median market capitalization of $287 billion. At a price-to-earnings ratio of 25.4, the valuation is lower than S&P 500 ETFs, but still relatively expensive compared to historical norms.
The biggest sectors in the fund are information technology at 28.5% and financials at 21.6%. The top 10 holdings in the fund are currently:
- Broadcom
- Microsoft
- Apple
- JPMorgan Chase
- Eli Lilly
- Visa
- ExxonMobil
- Mastercard
- Johnson & Johnson
- Walmart
Those stocks, which make up roughly 37% of the fund, represent a diverse collection of businesses and would fit well in almost any portfolio. All 10 are leading businesses in their respective sectors, though not all of the stocks are outperformers.
In recent years, the S&P 500 has beaten the Vanguard Dividend Appreciation ETF, which is primarily due to the artificial intelligence (AI) boom and the strength of stocks like Nvidia, Tesla, Alphabet, Meta Platforms, and Amazon, which aren't in the VIG as they either don't pay dividends or don't have the 10-year history of increasing them that the fund typically seeks.
Historically, however, the dividend appreciation ETF has had a similar total return to the S&P 500, and that pattern could reestablish itself if the AI boom moderates. Its dividend has also appreciated steadily over its history, up nearly 800% since its debut in 2006.
NYSEMKT: VIG
Key Data Points
Why you may want to consider a different dividend ETF
If you're looking for a higher yield from an ETF, there are other options. One of the more attractive dividend ETFs is the Schwab U.S. Dividend Equity ETF (SCHD +0.51%) with a dividend yield of 3.8%. Its top holdings include AbbVie, Lockheed Martin, ConocoPhillips, and The Home Depot, a decidedly different group of stocks than you'll find in the VIG or the S&P 500.
Another option is the Vanguard High Dividend Yield (VYM +0.73%) ETF, which offers a dividend yield of 2.5%, and counts Broadcom, JPMorgan Chase, ExxonMobil, Walmart, and Johnson & Johnson as its top five holdings, giving it a similar makeup to the dividend appreciation ETF.
For investors looking for a dividend ETF, a basket approach may be the best move. While the VIG may not have the highest yield, combining that ETF with another like the Schwab Dividend Equity ETF can give investors a balanced and diversified approach to dividend stocks. Though ETFs diversify for you, there's no reason to own just one.
