Good news. Vanguard recently reopened Vanguard Dividend Growth (VDIGX (opens in new tab), $26.39), one of its very best funds. What’s more, the fund is relatively low-risk, making it ideal for a bull market that is showing signs of age.
Wellington Management’s Donald Kilbride has piloted Vanguard Dividend Growth since 2006. Since then, the fund returned an annualized 9.0%, or an average of 1.2 percentage points per year better than Standard & Poor’s 500-stock index. (All returns in this article are through March 13 unless otherwise indicated.) Wellington manages several funds under contract with Vanguard.
A big part of the fund’s success can be attributed to its miniscule expense ratio – just 0.22% annually. Very few actively managed stock funds come close to that low price.
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Of course, low fees have been crucial to Vanguard’s long-term success.
Dividend Growth: One of Vanguard’s Best Funds
Most of the attention on Vanguard has focused on its index funds. But low costs and careful attention to choosing and monitoring outside managers has allowed Vanguard to build a group of excellent actively managed funds. And, says Daniel P. Wiener, editor of the Independent Adviser for Vanguard Investors newsletter: “Dividend Growth has been one of the best active funds in Vanguard’s stable.”
Over the past five years, Vanguard Dividend Growth has returned an annualized 8.4% compared to an annualized 7.9% for the S&P 500.
But the real trick: Kilbride delivered those index-beating returns while the fund exhibited about 18% less volatility than the S&P.
That counts for a lot when the stock market turns sour. In 2018’s selloff, for example, Dividend Growth lost 14.5% while the S&P tumbled 19.4%. In the 2007-09 bear market, Dividend Growth lost 42.0% while the S&P plunged 55.3%.
At the same time, don’t expect Dividend Growth to lead the pack in a straight-ahead bull market. Indeed, VDIGX finished in the bottom quartile against other large-blend funds in 2012 and 2016 – years when the S&P posted double-digit gains.
That’s because Kilbride focuses on stocks that can steadily grow their earnings – and distribute them to shareholders. He avoids more speculative fare.
He owns a portfolio of 40 to 50 blue chips, and he holds on to stocks for about five years on average. He invests relatively little in technology compared to the benchmark and he has an overweight in consumer staples and industrials. Top holdings include McDonald’s (MCD (opens in new tab)), Coca-Cola (KO (opens in new tab)), Microsoft (MSFT (opens in new tab)), UnitedHealth Group (UNH (opens in new tab)) and Johnson & Johnson (JNJ (opens in new tab)).
Don’t invest in Dividend Growth with the notion of collecting big dividend checks. The fund yields a meager 1.8%. Kilbride eschews stocks paying large dividends – instead, what matters most is that his holdings can grow their cash distributions in the coming years.
Alec Lucas, a Morningstar senior analyst and an investor in the fund, says Kilbride “has a laser-like focus on dividend growth. He looks for companies where there’s dividend growth he can understand.” Morningstar assigns VDIGX its top rating of gold.
Kilbride puts his money where his mouth is, too; the lion’s share of his net worth is in the fund. Heavy manager ownership of a fund he or she manages has been a good indicator of fund performance.
Vanguard closed Dividend Growth in July 2016. Since then, it experienced net outflows of more than $7 billion, and it finally reopened in August 2019. “We’re confident that there is ample capacity to reopen the fund,” Matthew Brancato, head of Vanguard’s portfolio review department, said last year. Vanguard Dividend Growth currently has assets of $39.5 billion.
Those new to VDIGX will need to make a $3,000 minimum initial investment. But Vanguard has a respectable alternative for those working with less.
VIG: Vanguard’s Indexed Option
Not sure whether you want to invest in an actively managed dividend growth fund? Vanguard still has you covered.
Vanguard Dividend Appreciation (VIG (opens in new tab)) is an exchange-traded fund (ETF) that replicates the Nasdaq U.S. Dividend Select Achievers Index. The index considers only dividend stocks that have hiked their payouts consistently for at least the past 10 years. It screens out less profitable companies and companies with deteriorating fundamentals.
Dividend Growth has topped Dividend Appreciation over most trailing periods. VIG lags VDIGX by an average of 0.61 percentage points annually over the past 10 years. But Dividend Appreciation has been on top in some years, and Dividend Growth can’t compete with the ETF’s 0.06% annual expense ratio. Moreover, ETFs don’t have investment minimums; if you can afford one share, you’re in.
I favor Vanguard Dividend Growth, but they’re both terrific choices. And given their strong returns in lousy markets, either can make a good addition to almost any portfolio.
Steve Goldberg is an investment adviser (opens in new tab) in the Washington, D.C., area.
FAQs
Vanguard closed the fund to most new accounts in July 2016, seeking to protect the interests of existing shareholders by reducing cash flow after a period of rapid growth. Cash flow has subsequently subsided and market conditions have changed since the fund's closing.
How often does Vanguard Dividend Growth Fund pay dividends? ›
Dividend Payout History
| Declare Date | Ex-Div Date | Frequency |
|---|
| 3/28/2023 | Quarterly |
| 3/25/2022 | 3/28/2022 | Quarterly |
| 12/28/2021 | 12/29/2021 | Quarterly |
| 6/17/2021 | 6/18/2021 | Quarterly |
84 more rowsVDIGX carries a Zacks Mutual Fund Rank of 1 (Strong Buy), which is based on various forecasting factors like size, cost, and past performance.
Is Vanguard dividend growth better than appreciation? ›
Dividend Growth has topped Dividend Appreciation over most trailing periods. VIG lags VDIGX by an average of 0.61 percentage points annually over the past 10 years. But Dividend Appreciation has been on top in some years, and Dividend Growth can't compete with the ETF's 0.06% annual expense ratio.
Why are some Vanguard funds closed to new investors? ›
Funds generally close for one of two reasons. The fund may be closing due to low performance or low demand. Inversely, the fund may be receiving substantial demand with excessive inflows. If a fund is only closing to new investors, it is likely the fund is seeking to minimize its inflows while still operating actively.
What happens to my investment if Vanguard goes out of business? ›
Vanguard is paid by the funds to provide administration and other services. If Vanguard ever did go bankrupt, the funds would not be affected and would simply hire another firm to provide these services.
Is dividend growth investing worth it? ›
Dividend investing can be a great investment strategy. Dividend stocks have historically outperformed the S&P 500 with less volatility. That's because dividend stocks provide two sources of return: regular income from dividend payments and capital appreciation of the stock price. This total return can add up over time.
What is the return of Vdigx 3 year? ›
The fund has returned -2.78 percent over the past year, 17.22 percent over the past three years, 12.05 percent over the past five years and 11.80 percent over the past decade.
How long should I keep the stock to get dividend? ›
The ex-dividend date is the first day the stock trades without its dividend, thus ex-dividend. If you want to get the dividend payment, you need to own the stock by this day. That means you have to buy before the end of the day before the ex-dividend date to get the next dividend.
What is the best dividend growth fund? ›
Top dividend mutual funds
- Vanguard Dividend Appreciation Index Admiral Shares (VDADX)
- T. Rowe Price Dividend Growth Fund (PRDGX)
- Vanguard Dividend Growth Investor Shares (VDIGX)
- Vanguard High Dividend Yield Index Admiral Shares (VHYAX)
- Vanguard Equity-Income Investor Shares (VEIPX)
Dividends are not guaranteed. A company may decide not to pay dividends any further. Alternatively, may choose to reduce their dividend. Another con of dividend investing for passive income is the eventual ceiling of returns.
Which Vanguard dividend fund is best? ›
Best Vanguard Dividend ETFs Wrap Up
- High Dividend Yield ETF (VYM)
- Dividend Appreciation ETF (VIG)
- International High Dividend Yield ETF (VYMI)
- Utilities ETF (VPU)
- Real Estate ETF (VNQ)
Some of the advantages of dividend stocks are that they tend to outperform growth stocks, offer consistent cash flow at regular intervals, and because stocks that offer dividends typically indicate that a company is financially healthy enough to pay shareholders cash, the investment can be less risky.
What is the fastest growing Vanguard? ›
Vanguard's fastest growing mutual fund was also the Vanguard Energy Index Fund, which grew by 38.4 percent. As of November 2022, the Vanguard Total Stock Market Index Fund was the largest fund owned by Vanguard, with net assets under management worth approximately 1.2 trillion U.S. dollars.
What are the pros of dividend growth investing? ›
Pros of Dividend Growth Stocks
Companies that pay dividends offer owners a consistent source of income, which can be especially helpful for retirees or other people who depend on a constant income.
Why not to use Vanguard? ›
Vanguard is the king of low-cost investing, making it ideal for buy-and-hold investors and retirement savers. But beginner investors and active traders will find the broker falls short despite its $0 stock trading commission, due to the lack of a strong trading platform and accessible educational resources.
What is the best active Vanguard fund? ›
Our pick for the best Vanguard mutual fund is VTWAX. This fund features diversification among more than 9,500 large-, mid-, and small-cap stocks from U.S., international developed and emerging markets.
What is happening with Vanguard? ›
In April 2021 Vanguard launched its personal financial planning service aimed towards investors planning for retirement. However, in March 2023, less than two years after it was launched, Vanguard announced that the service is to close on 31st May 2023.
Is it safe to put all my money in Vanguard? ›
Money market funds and other securities held in the Vanguard Brokerage Account are eligible for SIPC coverage. Securities in your brokerage account are protected up to $500,000. To learn more, visit the SIPC's website. Up to $250,000 by FDIC insurance.
Do you get taxed for taking money out of Vanguard? ›
Withdrawals before age 59½
Withdrawals of your traditional IRA contributions before age 59½ will result in regular income tax on the taxable amount of your withdrawal plus a 10% federal penalty tax —generally the entire amount—unless you qualify for an exception.
In fact, Fidelity is our overall pick for the best online broker in 2022, so it is very hard to beat. All that said, Vanguard still offers some of the lowest-cost funds in the industry and will appeal to buy-and-hold investors, retirement savers, and investors who want access to professional advice.
Are any Vanguard funds closed to new investors? ›
Most Vanguard index funds no longer offer Investor Shares to new investors. For the few that do, most have $3,000 minimums. $3,000 for most index funds. $50,000 for most actively managed funds.
Is Vanguard Primecap open to new investors? ›
Purchase and Sale of Fund Shares The Fund is closed to new accounts for investors not enrolled in Vanguard Flagship Services® or Vanguard Personal Advisor Services®.
What is the difference between Vanguard dividend growth and equity income? ›
First, each has different exposure to sectors, numbers of holdings, management styles, and investment selection processes. Second, Vanguard Equity Income Investor Shares tend to focus more on large-cap value stocks, while Vanguard Dividend Growth Investor Shares holds a variety of large-cap stocks.
Can I get dividend after announcement? ›
You must buy shares before the ex-date to receive the declared dividend. The record date is the day on which you must be on the company's books as a shareholder to receive the declared dividend.
