Vanguard is one of the ETF industry's powerhouses thanks to its diversified lineup of fund offerings and ultra-thin expense ratios. That makes it a perfect landing spot for dividend seekers looking to maximize their yields through long-term investing.
Most of their its ETFs are broadly-focused, but the dividend ETF lineup is top notch. It's not as extensive as those of other issuers, but the focus on both dividend growth and high yield means they can almost single-handedly fill in 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 marketplace specifically targeting dividend stocks. Its objective is quite simple. It targets U.S. stocks that have at least 10 consecutive years of increased annual dividend payments and market cap weights them. REITs are excluded from the fund's index.
Over the course of the past 15 years, VIG has nearly kept pace with the broader market, despite the equity market's preference for large-cap growth. VIG maintains much more of a low volatility demeanor, while tilting heavier towards cyclical and defensive sectors.
The returns are even more impressive given that 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 the one exception that it only requires a 7-year dividend growth streak instead of 10. Qualifying stocks can come from both developed and emerging markets outside of the United States. The portfolio is also market cap weighted.
There's not quite as much history here, so we have to take the shorter-term historical results with a grain of salt. VIGI has done relatively well. Its mixture of both developed and emerging markets stocks makes it difficult to compare to either index directly, but it's not terribly surprising that it falls somewhere in the middle. Like VIG, VIGI is also comparatively less risky than the broader indexes and has a trailing 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's not terribly targeted. The fund's index starts with a broad U.S. equity universe, rank orders the stocks by forecasted dividend yield and simply includes the top half in the index. Like VIG, it also excludes REITs and market cap weights the qualifying components.
The focus on high yielding large-cap stocks means that this ETF is tilted towards value-oriented defensive stocks, exactly the type of stock that the financial markets, for the most part, haven't really rewarded. With its largest allocations going towards financials, consumer staples, healthcare and industrial stocks, the tech and growth underweights have noticeably impacted performance. If the markets finally give up their sentiment for growth over an extended period, 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's the international version of VYM! VYMI uses a carbon copy strategy of VYM with the obvious exception that it targets developed and emerging markets stocks with above average yields.
VYMI has had some of the same issues that VYM has had in that value-oriented dividend payers have largely been shunned in favor of shiny growth stocks. VYMI is a more unusual case since there isn't much risk mitigation going on despite its tendency to hold lower volatility stocks. Investors looking to diversify their portfolios overseas, however, will probably find the 2.9% yield attractive.
Vanguard Real Estate ETF (VNQ)
With nearly $40 billion in assets, VNQ is easily the largest real estate ETF in the marketplace and is often the default option for those looking for REIT exposure. It's well diversified holding exposure to industrial complexes, office buildings, hotels, malls, hospitals, apartments and other commercial properties.
With yields remaining incredibly low, VNQ's current yield of 2.8% isn't high by historical standards, but it is attractive among its diversified REIT-focused peers. Other REITs focused mainly on residential real estate or other narrowly focused niches may offer much higher yields, but this is probably a better choice for those looking for broad real estate exposure and a nice yield.