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Active mutual funds continue to shun dividend-paying stocks, at least according to FactSet stock ownership data, reported by BofA earlier this week. The relative weight of long-only mutual funds to the high-dividend yield factor is near 50%, near its average since late 2016. Will managers eventually come around to the yield factor? Hard to say, but investors can capture yield without having to sacrifice growth, currently en vogue among many global portfolio managers.
I have a buy rating on the Vanguard Dividend Appreciation Index Fund ETF Shares (NYSEARCA:VIG). I see it as a quality balance between dividend companies and firms focusing on growth over the coming years.
High Dividend Stocks Out of Favor; Dividend Aristocrats A More Popular Play
BofA Global Research
According to the issuer, VIG seeks to track the performance of the S&P U.S. Dividend Growers Index and employs a passively managed, full replication indexing approach. The ETF contains large-cap equities with an emphasis on owning shares of firms that grow their dividends year over year. It can be seen as a “dividend aristocrat” ETF.
VIG is a large fund with more than $88 billion in assets under management and carries a 1.9% dividend yield, about 40 basis points above that of the S&P 500 (SP500). With a low annual expense ratio of just 0.06%, the fund earns an A+ ETF Grade in that aspect by Seeking Alpha. Moreover, share-price momentum has been very impressive over the last few months, and I will detail key price levels to monitor on the chart later in the article. Risk is better than average with VIG given its diversified portfolio and historical standard deviation metrics. Finally, liquidity is no concern at all given VIG’s high 1.6 million shares traded daily, on average, over the past three months.
Digging into the portfolio, VIG offers investors a diversified mix of large-cap U.S. stocks. Sixteen percent of the ETF is considered large-cap value, while 22% is in the upper-right growth portion of the style box. The 3-star, gold-rated fund by Morningstar features a price-to-earnings ratio of 18.7, roughly a turn cheaper than the earnings multiple of the S&P 500. Long-term earnings growth is solid, near 11%, with both the yield and quality factors being above average. The portfolio is by no means a screaming value, but I like that the P/E is below the broader market while the quality is high and volatility is low.
VIG: Portfolio & Factor Profiles
Morningstar
VIG is also more diversified across sectors compared to the SPX. Twenty-four percent of the allocation is in the Information Technology sector, about five percentage points less than the S&P 500. Investors should also appreciate that the ETF’s top 10 assets comprise just 32% of the portfolio, a more balanced mix than the overall market. As the fund’s payout has risen over time, the yield has not kept pace at times due to strong share-price appreciation.
VIG: Portfolio & Dividend Information
Seeking Alpha
VIG Dividend Yield History
Seeking Alpha
Seasonally, VIG tends to hold up better than some other risk-on equity funds during the first quarters, according to data from Equity Clock. The fund has returned about 10% annually since its inception 17 years ago, and those gains tend to be most pronounced from mid-March through year-end.
VIG: Neutral Q1 Trends, Bullish Q2 Historical Returns
Equity Clock
The Technical Take
Like the U.S. stock market, VIG has recaptured its all-time high that was previously notched at the turn of the year in 2021 into 2022. A significant drawdown of 23%, about five percentage points less than the S&P 500s, took place two years ago, but VIG rallied sharply off its October 2022 low. The material correction from July through late October last year resulted in the ETF tagging the $149 spot – a pivotal price over the last handful of quarters. With the ETF now firmly above its long-term 200-day moving average and modestly eclipsing its January 2022 peak, momentum appears strong.
Take a look at the RSI momentum indicator at the top of the graph, though. It may be about to confirm a bearish divergence – that bears watching as earnings season progresses. I’d like to see the fund break out with more conviction in the near term. Still, a bullish rounded bottom pattern is the long-term focus, and support is likely to appear near $167 – the peak from July last year and where the rising 50-day moving average comes into play.
Overall, the chart appears healthy, though the bearish RSI divergence bears watching.
VIG: Shares Rise To Fresh All-Time Highs, Monitoring RSI Trends
StockCharts.com
The Bottom Line
I have a buy rating on Vanguard Dividend Appreciation Index Fund ETF Shares. The diversified portfolio is less concentrated than the S&P 500, and it features generally positive dividend, volatility, and quality factors. Its chart has near-term concerns, but the broader trend appears bullish in my view.
Join the Dividend Aristocrats Rally: Why You Should Stick with VIG for Fresh Highs
If you’re an investor looking for consistent and reliable income, you’re probably familiar with the term “Dividend Aristocrats”. These are companies that have a long track record of increasing their dividends year after year. In fact, they are such strong dividend payers that they have been able to weather even the toughest economic downturns. The Dividend Aristocrats have become a popular choice for dividend investors, as they provide an opportunity for both stability and growth in their portfolio.
One of the most popular ways to invest in the Dividend Aristocrats is through the Vanguard Dividend Appreciation ETF (VIG). This ETF tracks the performance of the Dividend Aristocrats and has become the go-to choice for many investors seeking to profit from the strength of these companies. Now, as the market continues to rally and the Dividend Aristocrats reach new highs, sticking with VIG could provide even more potential growth for your portfolio. In this article, we’ll dive into the reasons why you should join the Dividend Aristocrats rally and stick with VIG to reach fresh highs.
What are the Dividend Aristocrats?
The Dividend Aristocrats are a group of 65 S&P 500 companies that have consistently increased their dividends for at least 25 consecutive years. This is an impressive feat, as companies must have a strong financial standing and consistent earnings growth to be able to increase their dividends year after year. Some of the well-known names in this group include Coca-Cola, Johnson & Johnson, and Procter & Gamble, to name a few.
Why Should You Invest in the Dividend Aristocrats?
1. Consistent Income: One of the biggest draws for dividend investors is the reliable income they can provide. The Dividend Aristocrats, being some of the strongest dividend payers, offer investors a consistent stream of dividend payments. This is especially beneficial for those who rely on dividend income for their living expenses or for a regular stream of passive income.
2. Protection from Market Volatility: In times of market volatility, dividend paying stocks tend to hold up better compared to non-dividend paying stocks. This is because even if the market drops, investors can still receive dividends from their investments. As the Dividend Aristocrats have a long history of consistent dividend growth, they are able to provide a level of stability and protection to your portfolio during market downturns.
3. Potential for Growth: While the Dividend Aristocrats are known for their consistent dividend payments, they also have the potential for capital appreciation. As these companies have a strong financial standing and a proven track record of growth, they are likely to continue increasing their dividends over time. This makes them an attractive option for investors looking for both income and growth potential.
Why VIG is the Best Option to Invest in the Dividend Aristocrats?
Now that we’ve established the benefits of investing in the Dividend Aristocrats, let’s explore why VIG is the best option to gain exposure to this group of companies.
1. Diversification: VIG provides investors with exposure to a diverse range of Dividend Aristocrats across various sectors. This helps mitigate risk and ensures that if one sector underperforms, the overall impact on the portfolio is minimized. This level of diversification is not easy to achieve when investing in individual stocks, making VIG a convenient and smart choice for investors.
2. Cost-Effective: Investing in individual stocks can be costly, as it involves transaction fees and potential risks associated with picking the right stocks. With VIG, investors can gain exposure to the Dividend Aristocrats at a much lower cost. The expense ratio for VIG is only 0.06%, which is significantly lower compared to actively managed mutual funds.
3. Strong Historical Performance: VIG has a strong track record of performance, reflecting the growth of the Dividend Aristocrats over the years. According to Vanguard, VIG has had an average annual return of 11.71% since its inception in 2006, which is higher than the S&P 500’s average return of 9.41% during the same period.
4. Quarterly Dividend Payments: While most ETFs typically pay dividends on a monthly or annual basis, VIG distributes dividends four times a year. This means investors can receive regular income throughout the year, providing a steady stream of cash flow for their portfolio.
In Conclusion
The Dividend Aristocrats have proven to be a stable and profitable investment option for dividend investors. With the current market rally and their continued growth, sticking with a tried and tested option like VIG can provide investors with fresh highs in their portfolio. As always, it’s important to do your own research and consult with a financial advisor before making any investment decisions. But by joining the Dividend Aristocrats rally and sticking with VIG, you could potentially reap the benefits of stability, growth, and consistent income for years to come.
