Best Vanguard ETFs for Dividends
With concerns about market volatility, investors can find good value in these excellent dividend ETFs.
Dividend stocks and exchange-traded funds (ETFs) are more popular investments when markets are unstable, uncertain, or expected to decline or stagnate.
The markets are currently somewhat volatile, and this is expected to continue as the election approaches. Additionally, while it is impossible to know for sure what the markets will do, markets, especially large-cap stocks, can become overvalued, leading to additional volatility and uncertainty.
Dividend ETFs don’t typically perform very well, but the additional income they generate can boost investors’ returns and provide some stability. Here are two Vanguard ETFs that could be solid options for investors looking for balance, good dividends, and solid returns.
1. Vanguard Dividend Appreciation ETF
that Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) is the largest dividend ETF on the market, with nearly $86 billion in assets. This ETF tracks the performance of the S&P US Dividend Growers Index, which consists of stocks of companies with a history of increasing dividends.
The portfolio includes 337 stocks, mostly large caps, with a median market capitalization of $197 billion. The stocks in the portfolio are weighted in equal proportion to the index, with Apple (NASDAQ:AAPL), Broadcom (NASDAQ:AVGO), and Microsoft (NASDAQ:MSFR) currently making up the top three positions. Information technology stocks account for 23% of the portfolio, and financial stocks account for 20%.
The ETF currently pays a dividend of 85 cents per share with a yield of 1.65%. This is higher than the S&P 500 average return of 1.32%.
It doesn’t have the highest return among Vanguard ETFs, but it has an excellent return. As of September 30, the ETF had a year-to-date (YTD) return of 17.8%, and the one-year return including dividend reinvestment was 30%. It also boasts a 5-year average annual return of 12.7% and a 10-year average annual return of 12.1%.
2. Vanguard High Dividend ETF
Vanguard is one of the most popular managers of the dividend ETFs mentioned above. Vanguard High Dividend Yield ETF (NASDAQ:VYM) ranks as the third-largest dividend ETF, with approximately $58 billion in assets.
Unlike the Vanguard Dividend Appreciation ETF, the Vanguard High Dividend Yield ETF generally pays higher dividends but has lower yields. This ETF tracks the FTSE High Dividend Yield Index, which includes stocks with a history of paying above-average dividends. So essentially, the focus is on high dividends rather than constantly increasing dividends even when they are low.
It paid a dividend of 85 cents in the most recent quarter, but its yield is much higher at 2.65%. Yield refers to the ratio of dividends paid out per year to the stock price, so the higher the yield, the higher the dividend distribution per investment.
This ETF consists of more stocks (about 550) than any other option and has a median market capitalization of $141 billion. The top three holdings are Broadcom, JPMorgan Chase (NYSE:JPM), and Exxon Mobil (NYSE:XOM). About 21% of the portfolio is in financial stocks and about 13% in industrials.
This ETF includes fewer technology stocks, which results in higher returns, but average annual returns are slightly lower than other Vanguard dividend ETFs.
Specifically, the ETF is up 17.3% YTD and up 28% over the past 12 months. Additionally, as of September 30, the five-year annualized return was 11.1% and the 10-year annualized return was 10.2%.
Which is the better choice?
That’s because these two excellent dividend ETFs are quite different from each other and each has strong performance. If you’re looking for an income distribution to pocket each quarter, the Vanguard High Dividend Yield ETF may be a better option with a higher yield, but if you’re looking to reinvest dividends back into the fund to generate higher returns, the Vanguard Dividend Appreciation ETF may be the better option for you. It might be slightly better.
However, the return difference is not that great, so of these two excellent dividend ETFs, the Vanguard High Dividend Yield ETF may be a slightly better option with similar returns, less volatility, and higher yields.
