Vanguard Dividend Appreciation ETF Hits All-Time High: Is it Still Worth Buying?

The Vanguard Dividend Appreciation ETF has reached an all-time high due to strong megacap stock performance. Unlike income-oriented ETFs, it has significant exposure to growth-focused sectors like technology. Many non-top holdings have high dividend yields and long histories of increasing payouts. The ETF prioritizes companies that can support growing dividends with higher earnings.

The Vanguard Dividend Appreciation ETF (VIG) has reached an all-time high, driven by the strong performance of megacap stocks. Unlike traditional income-oriented ETFs, VIG has significant exposure to growth-focused sectors such as technology. This ETF prioritizes companies that can support growing dividends with higher earnings, making it a unique investment option for long-term investors.

Key Points
- The Vanguard Dividend Appreciation ETF (VIG) has reached an all-time high due to the strong performance of megacap stocks.
- Unlike income-oriented ETFs, VIG has significant exposure to growth-focused sectors like technology.
- Many non-top holdings in the ETF have high dividend yields and long histories of increasing payouts.
- The ETF prioritizes companies that can support growing dividends with higher earnings.

Details
The Vanguard Dividend Appreciation ETF (VIG) is unique because it accomplishes several investment objectives—from holding positions in top growth stocks to being a decent vehicle for collecting passive income. The ETF is not focused solely on dividend yield but rather targets companies that are growing their earnings and can support future dividend raises [1].

Data from Vanguard and YCharts show that eight of the 10 largest holdings in the ETF have yields under 1%. However, the lineup features industry leaders across various sectors, including technology, financials, consumer staples, healthcare, and energy. Funds that pursue higher-yielding stocks tend to be overweight low-growth sectors and underweight growth-focused sectors like tech. In contrast, the Vanguard Dividend Appreciation ETF prioritizes companies that can support a growing dividend with higher earnings, allowing it to include tech giants like Broadcom, Apple, and Microsoft [1].

Broadcom and Apple have increased their dividends for 14 consecutive years, while Microsoft has a 15-year streak. These stocks sport low yields not because they haven't been boosting their payouts, but because their stock prices have gone up by so much. The ETF doesn't penalize companies for having low yields because they have been winning investments [1].

Many of the largest holdings in the ETF sport low yields, but the top 10 holdings only make up 32.6% of the ETF. Holdings 11 through 20, which make up 15.8% of the fund, include Procter & Gamble, Johnson & Johnson, Home Depot, Oracle, AbbVie, Bank of America, UnitedHealth Group, Cisco Systems, Coca-Cola, and International Business Machines. These names have higher yields and extensive track records of boosting their payouts [1].

The ETF sports a relatively attractive valuation and dividend yield compared to the S&P 500. The price-to-earnings (P/E) ratio of the Vanguard Dividend Appreciation ETF is 25.7, and its yield is 1.7% compared to the Vanguard S&P 500 ETF (VOO), which has a 27.8 P/E and a 1.2% yield [1].

The ETF's emphasis on dividend quality over quantity will appeal to long-term investors who want to make sure they aren't achieving a high yield just by investing in mediocre companies. The fund could be an especially good pick for folks who don't want to collect passive income at the expense of limiting their exposure to tech stocks. Nvidia has been the poster child of artificial intelligence investor excitement, but Broadcom, the largest holding in the Vanguard Dividend Appreciation ETF, has been no slouch, with a staggering 474% gain in just three years [1].

Should you buy stock in Vanguard Dividend Appreciation ETF right now?
Before you buy stock in Vanguard Dividend Appreciation ETF, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Dividend Appreciation ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years [1].

References:
[1] https://finance.yahoo.com/news/red-hot-vanguard-etf-just-112000364.html