This is a review covering the Vanguard exchange-traded-fund (ETF) also known as VIG.
VIG is the stock symbol for the Vanguard Dividend Appreciation exchange-traded fund.
If you follow Dividends Diversify, you know I love dividends. And, you know I get most of my dividends by investing in individual stocks.
You can see the dividend stocks I own in the Dividends Diversify model portfolio. Each stock in the portfolio is linked to a recent review. In every review, I dig deep into each company’s dividend-paying prospects.
Over my nearly 20 years as a dividend investor, I have developed a 14 point dividend review checklist that I run every company through. Feel free to check out the model portfolio. I call it the Dividends Deluxe.
On the other hand, exchange-traded funds are also a great way to earn passive income from dividends. And build your wealth.
Speaking of building wealth, I’m going to run the numbers and show you how VIG can turn $150 into $1,000,000. So you can retire a millionaire!
But first, let’s cover a few basics to set the stage.
Affiliate Link Disclosure: I may get paid commissions (at no cost to you) for purchases made through links in this post.
VIG Is An ETF – What Is An ETF?
In case you are a beginning investor, let’s start with a few basic definitions. If you are a more experienced investor you can skim through the next couple of sections.
First of all, an ETF is a collection of securities, such as stocks. An ETF tracks an underlying index.
Furthermore, an ETF is called an exchange-traded fund because it is traded on an exchange just like an individual stock. The price of an ETF’s shares changes throughout the trading day.
Price changes happen as the shares are bought and sold on the market. Just like most things that are bought and sold, the economics of supply and demand influence the price.
Finally, by making one small investment in your brokerage account through an ETF, you get immediate ownership of many dividend stocks. Rather than just one dividend stock.
Therefore, VIG provides instant diversification. And that is one primary difference between buying a single stock versus an ETF, like VIG.
VIG Tracks An Index
As our ETF definition mentions, ETFs track an underlying index. VIG tracks the NASDAQ US Dividend Achievers Select Index.
This index is comprised of a select group of stocks that have at least ten consecutive years of increasing their annual dividend payments.
How To Get Started Investing In VIG
I have received some questions from readers about how to get started investing. So, let me address a couple of questions that you may have as a beginner.
Reader Question 1
Here’s 1 question you might have. “I’d like to invest in VIG. How do I buy shares?”
Investors most commonly buy and trade stock through stockbrokers. The investor decides whether to go through an online brokerage firm or a face-to-face broker.
But let’s be realistic here. In this day and age, most stock trades by individual investors are made online.
There are a couple of online stock brokers that I recommend. You just need to open up an account.
Then transfer some money into your newly opened brokerage account. And finally, buy shares of VIG, or any other stock of your choosing.
You can buy as few as one share or buy more if you like. 1 share of VIG will cost you a little more than $100. So you do not need a lot of money to get started.
But you do need a brokerage account. Both of the following options allow you to trade stock for free. That means no commissions are charged for your purchase of shares.
The second option is M1 finance. You can sign up with M1 finance by following this link.
Reader Question 2
Here’s another question you might have. “Do I need an account with Vanguard to buy shares in VIG?”
The answer to this question is no. An account with Webull, M1 Finance, or any other broker you choose is all that you need.
But there is a downside to opening a brokerage account with Vanguard. They charge commissions on trades of other types of securities.
For example, if you want to buy an individual stock like Coca-Cola or their competitor Pepsi in the future. Or an ETF from another company, like Fidelity or Charles Schwab, Vanguard will charge you a commission to make that trade.
Now, let’s dig into VIG, a Vanguard dividend growth fund investment option.
First, let’s head over to Vanguard and see what they say about their ETF.
Vanguard states that VIG:
- Seeks to track the performance of the NASDAQ US Dividend Achievers Select Index.
- Provides a convenient way to track the performance of stocks of companies with a record of growing their dividends each year.
VIG has plenty of good dividend stocks with almost 200 holdings. That’s right; you get nearly 200 dividend stocks with one single purchase.
The 10 largest holdings comprise 35% of the fund’s investments. So, by looking at the top 10, we can get a pretty good feel for VIG on an overall basis.
VIG’s 10 largest individual dividend stock holdings are shown in the chart below. Many of them are members of the Dividends Deluxe model portfolio.
And I have linked them to my dividend stock review in case you are interested in any of these specific stocks.
|Company||% of Fund|
|Proctor & Gamble||4.6|
|Johnson & Johnson||3.4|
VIG Dividend & VIG Dividend Yield
Over the past year, VIG has paid $2.11 per share in dividends. At the recent VIG stock price, this dividend payout translates to a 1.7% VIG dividend yield.
I prefer dividend yields in the 3-5% range. So, the VIG dividend is a little lower than I would prefer. Therefore, I want to see if VIG dividend growth makes up for the lower dividend yield.
VIG Dividend History
So, let’s lay out VIG’s dividend history now. It will provide some insight into the consistency of cash flow we can expect by investing in the fund. And more importantly, the growth of that cash flow.
You should take note that VIG pays dividends quarterly. However, each quarterly payout is different. The payout depends on which companies in the fund are paying their dividends and when.
If you require a consistent cash payout each quarter or monthly payment, VIG does not provide either of those options. So we will look at the VIG dividend history on an annual basis.
Here is VIG’s dividend history since its first full year of operation:
|Year||Dividend per share ($)|
I think it is interesting to notice that the dividend payment decreased in 2009. This was due to the financial crisis, global recession and bear market in stocks those situations created.
During that time, many companies were forced to reduce their dividends to conserve cash. As a result, the VIG dividend payments went down.
The dividend decreased again in 2013. But, I believe that was related to timing.
Due to expected changes in the tax laws, many companies accelerated dividend payments at the end of 2012. They pulled them forward from the 1st quarter of 2013 to the 4th quarter of 2012.
VIG Dividend Growth Rate
Now let’s take the annual VIG dividend payments and see what the growth rates look like on a percentage basis. With a dividend yield of less than 2%, I certainly want to see some solid growth. Plus the fund specifically targets dividend stocks with high dividend growth.
|3 Years||5 Years||9 Years||12 Years|
The long term track record of dividend growth looks okay. It is right around 8%. A nearly 2% VIG dividend yield and 8% VIG dividend growth rate is pretty solid.
On the other hand, I am a little concerned about the slowing growth rate over the trailing 3 and 5 year periods. This isn’t good enough for me. I can get a 5-6% dividend growth from higher-yielding investment options.
VIG Total Return
According to Vanguard’s website, VIG started operating in April of 2006. It has returned on average 9% per year since its inception.
April 2006 was a little more than a year before the last bear market in stocks began. Taking into account that the fund started near the peak of the market and right before a bear market tells us something.
And what does it tell us? No matter when you invest in stocks, invest long term. And, stay diversified because history tells us your investment returns will be good.
Over the past 10 years, VIG has returned almost 13%. This level of return reflects the ongoing bull market in stocks since the 2007-2009 market crash.
I wouldn’t expect this high of return going forward. I think 9-10% annual return on investment is realistic over the long run by investing in VIG
VIG Expense Ratio
Here is an area where ETFs in general and Vanguard specifically really shine. That is the area of low costs.
VIG’s expense ratio is a super small .06%. In other words, if you have a balance of $100 in VIG for the year, Vanguard will charge you only 6 cents.
Vanguard ETF’s have low expense ratios. Combine that with zero commissions and you have an excellent way to keep investment costs to a minimum.
Minimum Investment Requirements
An investor has to buy at least 1 share in an ETF to get started investing. This means you can get started for less than $150. And add to that investment anytime for less than $150.
VIG vs. VYM vs. DGRO
There are other options for dividends in the ETF universe.
Vanguard has another dividend growth fund called the Vanguard High Dividend Yield ETF (NYSE: VYM). It favors dividend stocks with higher yields, but lower dividend growth than VIG.
iShares, by Blackrock, offers the iShares Core Dividend Growth ETF (NYSE: DGRO). In my opinion, it closely resembles VIG with lower dividend yield and higher potential dividend growth.
But let me be honest, ETFs like VYM, VIG, and DGRO are lost cost, passively managed products. They are very similar to each other. ETFs in this area are essentially commodity-type products.
Dividend ETFs vs Individual stocks
The main advantage of dividend ETFs versus individual stocks is the instant diversification from ETFs an investor can have with a single purchase. Also, there is no need to spend time researching and selecting individual dividend stocks to invest in.
The primary disadvantage of dividend stock ETFs versus individual stocks is that the ETF will contain some stocks that may be poor investments.
With dozens or even hundreds of stocks included, not all of them are great companies. Nor will they all be high performing individual investments. You have to take the good with the not so good when investing in an ETF like VIG.
How To Retire A Millionaire By Investing Small Amounts In VIG
I mentioned at the beginning I would show you how to become a millionaire investing in VIG.
Many of us dream about becoming millionaires. But let’s put some numbers and math behind it. I’m a believer in thinking big thoughts. But you also have to execute a plan to make your money grow. So, let’s have some fun with numbers and become millionaires.
Assume at the age of 22 you start investing $150 per month in VIG. And we will also assume a 10% annual return on your investment.
Through your discipline and the power of compounding returns, your money will grow. You will be a millionaire living on dividends at the age of 62. Here are a few other thoughts…
Is it easy to come up with $150 per month? No. But it is possible.
Is this a get rich quick scheme? It is certainly not. We are talking about 40 years.
Is this a guarantee? Nope. But many people have become millionaires by investing small amounts over long periods. Investing in high-quality dividend stocks is a time tested and proven approach to building wealth.
Say you don’t have 40 years to wait? Then invest more each month. By increasing the monthly investment by another $50 to $200, you create your million dollars by the age of 59.
Investing is a long term process. Get started today by opening and funding your account with Webull or M1 finance.
VIG Fact Sheet & Summary
To wrap up, here is a brief VIG fact sheet and summary from this article about the Vanguard Dividend Appreciation ETF:
- Dividend yield of little less than 2%
- Long term dividend growth of 8%
- Diversification among nearly 200 dividend stocks
- Holds companies with at least 10 consecutive years of dividend increases
- Low cost
- Low initial investment
- Over the long term, VIG can make you a million bucks!
Resources: Online Stock Trading Platforms
- Dividends from a blue-chip stock portfolio
- 3 fund portfolio made up of Vanguard ETFs
- How to invest internationally for dividends
- Vanguard Utilities ETF review for utility stock dividends
Disclosure & Disclaimer
This article, or any of the articles referenced here, is not intended to be investment advice specific to your situation. I am not a licensed investment adviser, and I am not providing you with individual investment advice. The only purpose of this site is information & entertainment. We are not liable for any losses suffered by any party because of information published on this blog. See this site’s Disclaimer and Privacy tab for more information.