Vanguard is one of the powerhouses of the ETF industry with its diverse range of fund offerings and ultra-slim expense ratios. This makes it an ideal landing point for dividend seekers looking to maximize their returns through long-term investments.
Most of their ETFs are heavily concentrated, but the range of dividend ETFs is top notch. It’s not as broad as those of other issuers, but the focus on both dividend growth and high yield means that they can almost single-handedly fill this important segment for most portfolios.
If you’re looking to add a high-quality dividend ETF to your existing portfolio, here are 5 Vanguard funds that have you covered.
Vanguard Dividend Appreciation ETF (VIG)
With $ 60 billion in assets, VIG is the largest ETF in the market specifically targeting dividend-paying stocks. Its purpose is quite simple. It targets US stocks that have at least 10 consecutive years of increased annual dividend payments and market capitalization weights them. REITs are excluded from the fund index.
Over the past 15 years, VIG has almost kept pace with the market as a whole, despite the equity market’s preference for large cap growth. VIG maintains a much lower volatility behavior, while leaning more heavily towards cyclical and defensive sectors.
The returns are even more impressive given that the VIG has historically been around 10-15% less volatile than the S&P 500 over time. VIG has a current yield of 1.7%.
Vanguard International Dividend Appreciation ETF (VIGI)
This, of course, is the international version of VIG. The methodology is essentially the same, with one exception that it only requires a 7-year dividend growth sequence instead of 10. Eligible stocks can be from developed and emerging markets outside of the United States. The portfolio is also weighted according to market capitalization.
There isn’t as much history here, so we have to take the short-term historical results with a grain of salt. VIGI has done relatively well. Its mix of developed and emerging market stocks makes it difficult to compare directly to either index, but it’s not terribly surprising that it falls somewhere in the middle. Like VIG, VIGI is also comparatively less risky than the larger indices and has a 12-month dividend yield of 1.1%.
Vanguard High Dividend Yield ETF (VYM)
VYM is characterized by its focus on stocks with above average dividend yields, but it is not very focused. The fund index begins with a broad universe of US stocks, the rankings rank stocks based on expected dividend yield and simply include the top half of the index. Like VIG, it also excludes REITs and market capitalization weights qualifying components.
The focus on high-yield large-cap stocks means this ETF is geared toward defensive, value-driven stocks, exactly the kind of stocks that the financial markets, for the most part, haven’t really rewarded. With its largest allocations to financials, consumer staples, healthcare and industrials, the underweightings in technology and growth had a noticeable impact on performance. If the markets finally let go of their sense of growth over an extended period of time, VYM will likely be positioned to do well. The fund has a current yield of 2.7%.
Vanguard International High Dividend Yield ETF (VYMI)
And here is the international version of VYM! VYMI uses a carbon copy strategy of VYM, with the obvious exception of targeting developed and emerging market stocks with above-average returns.
VYMI had some of the same issues VYM had in that value-driven dividend payers were largely shunned in favor of bright growth stocks. VYMI is a more unusual case because there isn’t much risk mitigation despite its tendency to hold low volatility stocks. Investors looking to diversify their portfolios overseas, however, will likely find the 2.9% return attractive.
Vanguard Real Estate ETF (VNQ)
With nearly $ 40 billion in assets, VNQ is by far the largest real estate ETF in the market and is often the default option for those seeking exposure to REITs. It is a well-diversified exhibition to industrial complexes, office buildings, hotels, shopping malls, hospitals, apartments and other commercial properties.
With returns remaining incredibly low, VNQ’s current 2.8% return is not high by historical standards, but it is attractive among its diversified REIT-focused peers. Other REITs focused primarily on residential real estate or other narrowly focused niches may offer much higher returns, but this is probably a better choice for those looking for broad real estate exposure and a good return.
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