VPU ETF Review Of The Vanguard Utilities ETF

VPU ETF For Dividends From Utility Stocks

VPU ETF review

Let’s take a close look at the VPU ETF today.

VPU is the stock ticker symbol for the Vanguard Utilities exchange-traded fund (ETF).  If you do not desire to invest in individual utility stocks, the VPU ETF is a great alternative.

Also, before we are done with my VPU ETF review, I want to show you how investing in VPU can turn pennies into thousands of dollars. 

And, I will do my best to answer a few important questions.  Such as:

  • What is the Vanguard Utilities ETF?
  • Is VPU stock a good buy?
  • What is the best utility ETF?

I will get to those questions and many more in a moment.  But first, a brief overview.

Disclosure: At no cost to you, I may get commissions for purchases made through links in this post.

VPU ETF Review: Key Takeaways

1. VPU is an exchange-traded fund (ETF) made up of stocks from large, mid-size, and small US companies within the utility sector.

2. The ETF has nearly 70 individual dividend stock holdings. The 10 largest holdings comprise about 55% of the fund.

3. During its history, the fund has consistently provided current income from dividends, annual growth from those dividends, and share price appreciation.

4. Being a sector-focused ETF, it is subject to investment concentration risk. So, it is best suited for an otherwise diversified investment portfolio.

Next, a little background information. About ETFs in general and then we will fully explore VPU.

What Is An ETF?

According to Investopedia, an exchange-traded fund (ETF) is a collection of securities, such as stocks.   ETFs track an underlying index of stocks to duplicate the index’s investment performance.

An ETF is called an exchange-traded fund since it is traded on an exchange just like an individual stock. The price of an ETF’s shares will change throughout the trading day as the shares are bought and sold on the market.

In contrast to exchange-traded funds, traditional open-end mutual funds trade just once per day.  Shares are transacted after the stock market closes.

What Is A Utility ETF?

So, if you are not interested in selecting and buying individual stocks.  Then, with 1 small purchase, you can own a diverse portfolio of stocks.

In this case, VPU holds dozens of stocks from the US utility sector for instant diversification from a single purchase.  Income from dividends and low expenses are also advantages to investing in utility stocks through an ETF like VPU.

Let’s learn more about these specific topics by digging into the VPU ETF review next.

What is the Vanguard Utilities ETF?

As our ETF definition mentions, ETFs track an underlying index.  According to Vanguard, the VPU ETF seeks to track the performance of the MSCI US Investable Market Index.

The index is made up of stocks from large, mid-size, and small US companies within the utility sector.  Furthermore, the utility sector is composed of electric, gas, and water utility companies.

Finally, the sector also includes

  • Independent power producers
  • Energy traders
  • Companies that generate and distribute electricity from renewable sources
vanguard utilities ETF

VPU Holdings

VPU has nearly 70 individual dividend stock holdings from the utility sector.  Therefore, you get all of those utility company dividend stocks with one single purchase.

The 10 largest holdings comprise about 55% of the fund.  So, by looking at the top 10, we can get a pretty good feel for VPU on an overall basis.

I also like to look at ETF dividend portfolios for investment tips. Searching for possible dividend stocks I might like to own.

Here are the VPU ETFs holdings. As represented by its 10 largest investments.

Table 1: VPU Top 10 Utility Stock Holdings

RankUtility Stock% of Fund
1NextEra14%
2Dominion Energy (D)7%
3Duke7%
4Southern Co.6%
5AEP stock4%
6Exelon4%
7Sempra Energy4%
8Xcel Energy4%
9Wisconsin Energy (WEC)3%
10Eversource Energy3.0%

I have invested in utility stocks for a long time. And, earn dividend income from some of the best stocks in this sector.

But, I do not currently own the VPU ETF. However, as indicated by the links in red shown above, I own 6 of VPUs top 10 holdings.

Each of these 6 utility stocks is a member of my dividend stock model portfolio. And, each is linked to my most recent dividend stock review of the company and its stock.

VPU ETF Dividend & Dividend Yield

Last year, VPU paid $4.35 per share in dividends.  At the recent VPU stock price, the VPU dividend payout translates to a 3.2% VPU dividend yield.

If you are a regular reader, you know I prefer dividend yields in the 3-5% range.  So, the VPU dividend yield fits right in my “sweet spot”. But, perhaps you are interested in higher dividend yields?

VPU ETF Dividend History

Let’s look at the VPU dividend history now.  It may provide some insight into the consistency of cash flow we can expect by investing in the fund.

Take note that VPU dividends are paid 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 monthly dividends or the same cash payout each quarter, be aware that the VPU ETF does not provide either.

So, we will look at the VPU dividend history on an annual basis.  Here it is:

Table 2: Historical VPU Dividends Per Share

YearVPU Dividend per Share
2006$2.190
2007$2.187
2008$2.363
2009$2.470
2010$2.540
2011$2.659
2012$2.997
2013$3.132
2014$3.089
2015$3.414
2016$3.413
2017$3.707
2018$3.807
2019$4.037
2020$4.3482
VPU dividend history by year

I think it is interesting that the VPU dividend payment continued to increase in 2008 and 2009.  Why?  This was during the financial crisis, global recession, and bear market in stocks that those situations created.

During that time, many companies were forced to reduce their dividends to conserve cash.  But, as a whole, the US utility sector was able to power on through.   VPU offered shareholders a rising passive income stream from dividends during the worst of economic times.

It will be interesting to see what happens with the VPU ETF dividends looking forward.  The recession caused by the global health crisis will play out during this time.

VPU ETF Dividend Growth Rate

Now let’s take the annual VPU dividend payments and see what the growth rates look like.  With a moderate dividend yield, I certainly want to see some growth.

Table 3: VPU Dividend Growth Rate

YearsVPU Dividend Growth Rate
1 Year7.8%
3 Years5.5%
5 Years5.0%
7 Years4.8%
10 Years5.5%
13 Years5.0%

What do I see looking at the VPU dividend growth rate?  That’s easy, I see consistency. This makes sense because we are talking about a portfolio of some of the most consistent dividend stocks you can find.

During this long time span, we experienced a deep recession during 2008-2009.  Then, a robust economic expansion in more recent years. And most recently, another recession.

Regardless, dividend growth has remained pretty much the same.  Hovering right around 5% over the long-term

I am going to assume that future annual VPU ETF dividend growth will be similar to the past. In other words, about 5%.

Some years VPU dividend growth will be better and some years it will be worse.  But, I think we can count on 5% annually over the long-term.

VPU ETF Performance Based On Total Return

vpu etf performance

According to Vanguard’s website, the VPU ETF opened for business in January 2004.  VPU has averaged nearly 10% per year total return since its inception.

During this time, the VPU ETF has endured 2 bear markets.  The first bear was in 2008-2009.  And next, the short bear market of 2020.

And what can we learn from this?  No matter when you invest in stocks, invest long term, stay diversified and your results will likely be okay.

A long-term investor received nearly 10% total return per year in steady, stable utility stocks.  Furthermore, those utility stocks paid plenty of cash in the form of dividends included in that total return.

Finally, utility stocks did this while riding through the ups and downs of various market cycles.  Not bad performance, in my opinion.

Turning Pennies Into Thousands With The VPU ETF

vpu dividend

Now, let’s use the power of compounding returns to turn pennies into thousands of dollars.

The VPU ETF has been in existence for more than 16 years.  So, let’s say at the end of each quarter year you invest $150 into the VPU ETF.

That is $150 at the end of March, June, September, and December for 16 years.  There are about 90 days in each quarter, so that’s just $1.67 per day.  Okay, so a little more than a dollar a day.

At a little more than 9% annual return, you would have about $12,600 dollars at the end of that investment period.  And that $12,600 would be paying you almost $500 in cash dividends each year.

Most importantly, this investment performance comes from stable, steady stocks that provide services we use no matter what is going on in the world.

Electricity, water, and natural gas are not going out of style anytime soon.

VPU ETF Expense Ratio

Here is an area where ETFs in general and Vanguard specifically does very well.  That is the area of low costs.

Low investment costs help your pennies grow into thousands much more quickly. Because you keep more of the recurring dividend payments that you earn.

The VPU ETF expense ratio is a super small .1%.  In other words, if you have a balance of $100 in VPU for the year, Vanguard will charge you only 10 cents.

What about when your VPU stock is worth $12,600?  Then, you will be paying just $12.60 per year.

So, that is the VPU ETF expense ratio. However, there is 1 other investment cost you should consider. That is trading commissions. Let’s discuss…

Are Vanguard ETFs Commission Free?

If you buy VPU stock using a Vanguard brokerage account, the commission on the trade is free.  On the other hand, some brokerage firms still charge trading commissions.

But, there is no reason to pay commissions to trade stocks or ETFs.  Those days are gone.

As I said, you need a brokerage account to buy VPU stock and receive the VPU dividends.  I have a brokerage account with Webull.

Opening a Webull account is super easy.  And Webull has a fast and easy to use app.

You can read my full review about Webull right here.

Or, click here if you are ready to sign up for a Webull account

Sign up and fund your account and Webull gives you free stock! I received free stock when I signed up too.

Looking for a different type of financial service provider. Finally ready to open that IRA account to save and invest for retirement.

Then you may want to consider M1 Finance.

Before we wrap up, let’s address VPU’s valuation. And answer a few frequently asked questions.

VPU Stock Valuation

I will use a dividend growth formula to judge the VPU stock value.  The single-stage dividend discount model considers several factors I have discussed thus far.

  • The current annual dividend payment
  • Projected dividend growth

And one assumption not yet discussed. That being my desired annual return on investment, 9%.

Using these assumptions, the dividend discount model calculates the fair value of VPU stock to be $114 per share.

FAQs about the VPU ETF

Is VPU A Good Buy?

At the recent VPU stock price, the VPU dividend discount model indicates that VPU stock is overvalued at recent prices.

But, that misses the point, in my opinion.  Our example of turning pennies into thousands suggests investing small amounts regularly is a solid way to go about implementing a dividend investing strategy.

This strategy is often referred to as dollar-cost averaging.  No matter what the VPU stock price might be, investing small amounts at regular intervals is a good way to approach dividend investing.

Especially with good dividends stocks. And dividend paying ETF’s like VPU.

What Is The Minimum Amount Required To Invest In The VPU ETF?

So, if investing small amounts at regular intervals is a good dividend investing strategy. Then, what is the minimum amount required for an investment in the VPU ETF?

Well, an investor has to buy at least 1 share in an ETF to get started investing.  This means you can get started investing in VPU stock for less than $150.

And if you open a Webull brokerage account to buy that share, for a limited time, Webull will give you free stock.

What Is The Best Utility ETF?

The Vanguard Utilities ETF is not the only one of its kind.  There are other utility stock ETF options.  Here are just a few to consider.

  • Utilities Select Sector SPDR (XLU)
  • Fidelity MSCI Utilities Index (FUTY)
  • iShares US Utilities (IDU)

Are Vanguard ETFs Good?

So, if there are other utility ETF options, does Vanguard have good ETFs?

To me, ETFs are mostly a commodity product.  They are all a little different, but mainly the same.

In general, I think Vanguard ETFs are good.  Where Vanguard separates itself, is with low costs.  Vanguard is usually one of the lowest-cost options when comparing ETFs.

Utility ETFs vs Individual stocks

The main advantage of ETFs versus individual dividend stocks is the instant diversification an investor can have with a single purchase.

Furthermore, there is no need to spend time researching and selecting individual dividend stocks for your investments.

Finally, ETFs make investing in stocks easy.

On the other hand, I prefer picking individual stocks.  And I use the Simply Investing Report to help guide my decisions.

If you prefer selecting your own dividend stocks, read my full review of the Simply Investing report here.

Or find out more direct from Simply Investing.

You might wonder why I prefer to select and buy individual dividend stocks? Well, the primary disadvantage of dividend stock ETFs is that the ETF will contain some stocks that may be poor investments.

With dozens of stocks included in an ETF like VPU, not all of them are great companies. Nor will every stock in an ETF be a high performing individual investment.

So, you have to take the good with the not so good when investing in ETFs.

Is The VPU ETF Right For You?

The utility sector is considered to be defensive in nature.   Therefore, utilities are often desirable in a down market cycle.  They also offer a relatively stable income and share price growth.

But utility ETFs may not be right for every investor.  It is a concentrated fund that focuses on a single sector.  So, it is best not to allocate all your portfolio assets to just one sector fund like the VPU ETF.

Diversification is especially important if you are retired, relying on investments for income.

VPU ETF Fact Sheet & Summary

Here is a quick fact sheet and summary from this article about the Vanguard Utilities ETF – VPU:

In my opinion, the VPU ETF can be a solid part of a diversified investment portfolio. A few summary points to leave you with about the VPU ETF.

  • Moderate VPU dividend yield of more than 3%
  • Consistent VPU dividend growth projected at 5%
  • Diversification among more than 60 stocks from the US utility sector
  • VPU is low cost and can be bought and sold commission-free
  • The VPU ETF requires only a small initial investment
  • VPU stock appears slightly overvalued at recent prices

If You Liked This Vanguard Utilities ETF Review, You Might Enjoy…

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Disclosure & Disclaimer: I am not a licensed investment adviser, financial adviser, or tax professional. And I am not providing you with individual investment advice, financial guidance, or tax counsel. Furthermore, this website’s only purpose is information & entertainment. And we are not liable for any losses suffered by any party because of information published on this blog.

I do not currently own the Vanguard Utilities ETF stock, but own 6 of the VPU ETF top 10 holdings

4 thoughts on “VPU ETF Review Of The Vanguard Utilities ETF”

  1. Hi Tom,

    Great review. I own VPU and regularly add to it, as a long term holding. I like the stability and steady dividends it adds to my portfolio. Plus, I believe in holding utilities, since their product will always be in demand.

    The long-term transition to electric cars gives me even more reason to be a long-term bull.

    Cheers,
    Miguel

    • Appreciate an owner’s perspective, Miguel. I believe VPU will serve you (and most investors) well in the long run. Tom

  2. I don’t have VPU but this is a great option for those who want to invest in utilities but want a bit more diversification. Great review!

    • Thanks, GYM. Totally agree. The Vanguard Utilities Fund (VPU) is a good option for the reasons you mention. If I wasn’t already heavily weighted in the top 10 holdings, I would be a buyer. Tom

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