Got $1,000 to Invest? Buy This Top Vanguard ETF and Never Look Back.
Key Points
Over the last 50 years, the typical company in the S&P 500 has delivered an average annual total return of 7.7% if we go by the returns of an equal-weighted S&P 500 index. However, there's a wide variation of returns within that index. For example, dividend payers have outperformed dividend non-payers by more than two to one, according to data by Ned Davis Research and Hartford Funds (9.2% average annual total return compared to 4.3%).
There has also been a wide variation of returns among dividend stocks:
|
Dividend Policy |
Average Annual Total Returns |
|---|---|
|
Dividend growers and initiators |
10.2% |
|
No change in dividend policy |
6.8% |
|
Dividend cutters and eliminators |
-0.9% |
Data source: Ned Davis Research and Hartford Funds.
That data suggests that investing in companies that grow their dividends should yield the best returns over the long term.
Vanguard makes it easy to invest in these top-performing dividend stocks through its Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) . The fund tracks the S&P U.S. Dividend Growers Index , which, as the name suggests, aims to measure the performance of companies that consistently increase their dividends. Because of that, it's a great ETF to buy and hold for the long haul. It should be able to grow a $1,000 investment into a much bigger future payday.
Focused on the best dividend growth stocks
The Vanguard Dividend Appreciation ETF has a very straightforward investment strategy of matching the holdings of the S&P U.S. Dividend Growers Index. That index aims to measure the performance of companies that have increased their dividend payments every year for at least the past decade. It also excludes the top 25% highest-yielding stocks eligible for the list because companies with higher dividend yields tend to be at a higher risk of reducing their payouts. The net result is an index focused on the best dividend growth stocks in the stock market.
That's actually a pretty big list. The fund currently holds 338 companies across most market sectors. Here's a look at its top 10 holdings:
|
Dividend stock |
Fund Weighting |
Current Yield |
Consecutive Annual Dividend Increases |
|---|---|---|---|
|
Broadcom |
4.2% |
1% |
14 |
|
Microsoft |
4.1% |
0.7% |
20 |
|
Apple |
3.8% |
0.5% |
14 |
|
Eli Lilly |
3.7% |
0.8% |
11 |
|
JPMorgan Chase |
3.6% |
2.1% |
15 |
|
Visa |
3% |
0.7% |
16 |
|
ExxonMobil |
2.4% |
3.7% |
43 |
|
Mastercard |
2.4% |
0.5% |
14 |
|
Costco Wholesale |
2.3% |
0.5% |
20 |
|
Walmart |
2.2% |
1% |
50 |
Data source: Vanguard.
