VPU ETF For Dividends From Utility Stocks
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.
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 before we start our VPU ETF review.
Affiliate Link Disclosure: I may get paid commissions (at no cost to you) for purchases made through links in this post.
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, 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 utilities sector. Furthermore, the utilities 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
VPU has approximately 66 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.
Here are the VPU ETFs holdings as represented by its 10 largest investments:
Table 1: VPU Top 10 Utility Stock Holdings
|Rank||Utility Stock||% of Fund|
|5||American Electric Power||4.5%|
|9||WEC Energy Group||3.2%|
I do not currently own the VPU ETF. However, as indicated by the links in red, 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 $4.037 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”. Perhaps you are interested in higher dividends 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 the same cash payout each quarter, the VPU ETF does not provide that. So, we will look at the VPU dividend history on an annual basis. Here it is:
Table 2: Historical VPU Dividends Per Share
|Year||VPU Dividend per Share|
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 in 2020 and 2021. The current global recession will play out during this period.
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
|Years||VPU Dividend Growth Rate|
What do I see looking at the VPU dividend growth rate? That’s easy, I see consistency.
During this long time span, we experienced a deep recession during 2008-2009. Then, a robust economic expansion in more recent years.
Regardless, dividend growth has remained pretty much the same. It held steady in the 4.5% to 5.5% range.
For my financial planning purposes, I am going to assume that future VPU ETF dividend growth will be 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
According to Vanguard’s website, the VPU ETF opened for business in January 2004. VPU has averaged 9.3% 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 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 over 9% total return per year in steady, stable utility stocks. Furthermore, those utility stocks paid plenty of cash dividends.
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
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 9.3% annual return, you would have about $12,600 dollars at the end of that 16 year 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.
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, their 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, if your brokerage account is with another firm, their standard ETF trading commissions will apply.
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.
Sign up and fund your account and Webull gives you free stock! I received free stock when I signed up too.
VPU Stock Valuation
I will use a single stage dividend discount model to judge the VPU stock value. The single-stage dividend discount model considers several factors I have discussed thus far.
- Current annual dividend payment – $4.04 per share
- Projected dividend growth – 5.0%
- My desired annual return on investment – 9.3%
Using these assumptions, the dividend discount model calculates the fair value of VPU stock to be $115 per share.
Is VPU A Good Buy?
At the recent VPU stock price, the VPU dividend discount model indicates that VPU stock is slightly overvalued at recent prices.
But, that misses the point, in my opinion. Our example of turning pennies into thousands suggests investing small amounts on a regular basis is a solid 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 dividend investing strategy.
What Is The Minimum Amount Required To Invest In The VPU ETF?
So, 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, 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 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.
In contrast, 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 utilities 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.
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%
- Nice 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…
- VYM review – Vanguard high dividend yield ETF
- VIG review – Vanguard dividend appreciation ETF
- VYMI review – Vanguard international high dividend ETF
My Favorite Dividend Investing Resources
- The Webull app for fast, free stock trading
- The Simply Investing Report for dividend stock analysis & recommendations
Disclosure & Disclaimer
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