If you’re looking for passive income, a dividend-focused exchange-traded fund (ETF) is a great option to consider. These ETFs allow you to own hundreds of dividend-paying stocks with a single investment, reducing the risk of excessive concentration in just a few companies.
Vanguard ETFs are particularly popular with income investors thanks to their extremely low fees and excellent track record. Still, Wall Street has been more interested in growth lately, and as a result the company’s dividend-focused funds have lagged the market over the past decade. Let’s take a look at Vanguard’s largest dividend ETFs.
National and international coverage
Vanguard dividend ETFs cover two main categories: dividend growth and current yield. The former provides exposure to some of the fastest growing dividends among large companies. The second leans more toward higher yields today.
You can also choose to focus on U.S. stocks or international stocks within these two categories. In total, there are four main Vanguard dividend ETFs to choose from:
1. Vanguard High Dividend Yield ETF (NYSEMKT:VYM)
2. Vanguard International High Dividend Yield ETF (NASDAQ:VYMI)
3. Vanguard Dividend Appreciation ETF (NYSEMKT:VIG)
4. Vanguard International Dividend Appreciation ETF (NASDAQ:VIGI)
None of these funds outperformed the more than 200% rise in S&P500 in the last decade. This isn’t surprising given that growth stocks have fueled the market’s rally in recent years. Conversely, dividend stocks tend to outperform when indexes fall or when fears of a coming recession increase.
The 10 year winner
Still, the Vanguard Dividend Appreciation ETF has far outperformed its peers after gaining 170% over the past decade. This compares with the worst-performing dividend ETF, the Vanguard International High Dividend Yield fund, with its return of 85% in 10 years.
You will own 340 shares by purchasing a single share of this winning fund, which counts Apple, MicrosoftAnd Home deposit among its main titles. Expenses are low and the dividend appreciation fund currently yields 1.8%. That’s a bit better than you’d get from owning the broader stock market, which today yields 1.4%.
Yet income investors can achieve much higher returns. Vanguard’s International High Dividend Yield fund, for example, pays out almost 5%. Several members of the Dow Jones Industrial Average also pay more than 3%.
Still, the Vanguard Dividend Appreciation ETF offers a better balance of technology stocks and solid income stocks than most other ETFs. Possess either Vanguard Total Stock Index ETFor the Vanguard S&P 500 ETF will give additional visibility to the huge tech giants. The Magnificent Seven are all represented in the top 10 holdings of these ETFs, for example.
That means your returns could lag those of the broader market during tech-fueled rebounds, like the one investors saw last year. Still, the dividend appreciation ETF will likely beat the market in an economic downturn or whenever growing fears about a coming recession arise.
The Vanguard Dividend Appreciation ETF won’t cover everything on an income investor’s wish list. It would, however, play a powerful role as part of a diversified portfolio, which includes other ETFs and perhaps some dividend stocks Also. If you’re looking for an efficient way to access dividend growth, consider purchasing this winning ETF.
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Demitri Kalogeropoulos holds positions in Apple, Home Depot and Vanguard Index Funds-Vanguard Total Stock Market ETF. The Motley Fool has positions in and recommends Apple, Home Depot, Microsoft, Vanguard Index Funds-Vanguard Total Stock Market ETF, Vanguard S&P 500 ETF, Vanguard Specialized Funds-Vanguard Dividend Appreciation ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
Should you buy the best performing Vanguard dividend ETF of the decade? was originally published by The Motley Fool
