Vanguard Equity Income Fund Investor Shares (VEIPX) and Vanguard Dividend Growth Fund Investor Shares (VDIGX) are two reliable Vanguard mutual funds that specialize in investing in predominantly domestic equities of companies that pay regular dividends.
While having somewhat similar investment objectives, these two funds differ on several fronts. 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.
Key Takeaways
- Dividend funds are mutual funds that focus on buying stocks with attractive dividend yields.
- Vanguard Dividend Growth Fund Investor Shares and Vanguard Equity Income Fund Investor Shares are two dividend mutual funds that have similar objectives.
- However, the two funds differ in many respects—the number of stocks held, asset allocations, and stock-picking methodologies.
- Like many Vanguard mutual funds, Vanguard Dividend Growth Investor Shares and Vanguard Equity Income Investor Shares have been reliable, low-cost vehicles for longer-term investors.
Investment Objectives
Donald Kilbride—an industry veteran who has advised the fund since 2006 and has more than 20 years of investment management experience—manages Vanguard Dividend Growth Investor Shares. Kilbride prefers a concentrated portfolio of around 50 stocks of companies with strong competitive advantages. In February 2022, the fund held 42 stocks.
Vanguard Dividend Growth Investor Shares holds companies with consistent dividend growth and does not necessarily own stocks that currently have above-average yields. In fact, the fund stays away from companies after dividend yields spike, which may signal upcoming dividend cuts. The result is a 30-day SEC yield of 1.44% Donald Kilbride may, at times, look for stocks that have respectable payout ratios, which can sustain dividend growth going forward.
Vanguard Equity Income Investor Shares, on the other hand, tends to focus on stocks of high-yielding companies with low valuations, but promising growth prospects. This has led Morningstar to classify the fund under the large value category for its distinct emphasis on holding undervalued equities.
The fund typically holds a much larger number of stocks with lower price-to-earnings (P/E) ratios. The total number of stocks in the portfolio is 192.
Michael Reckmeyer and Michael Hand of Wellington Management advise Vanguard Equity Income Investor Shares, as well as Vanguard Quantitative Equity Group's Sharon Hill. The fund focuses on higher-yielding dividend stocks, with a 30-day SEC yield of 2.17% as of February 2022.
$3,000
The minimum amount for initial investments into Vanguard Dividend Growth Investor Shares or Vanguard Equity Income Investor Shares mutual funds.
Sector Exposure
These funds also differ in their sector allocations based on their investment selection processes. The largest sector allocations in Vanguard Dividend Growth Investor shares are:
- Industrials (20.5%)
- Health care (19.9%)
- Consumer staples (17.2%)
Vanguard Equity Income Investor Shares, on the other hand, favors:
- Financials (21.6%)
- Health care (16.1% allocation)
- Consumer staples (14.1% allocation)
Investment Performance
When it comes to investment performance, VDIGX has outperformed over longer periods of time. For the 10 years ended Jan. 31, 2022, the fund generated an average annual return of 13.94%, while VEIPX posted a 12.87% return. Over the last three- and five-year periods, VDIGX generated annualized returns of 18.37% and 15.82%, respectively. VEIPX's returns for the same periods were 15.06% and 12.4%, respectively.
VDIGX is a three-star rated fund by Morningstar, while VEIPX is rated four stars. For their five-year performance period, both funds are rated four stars. VDIGX's expense ratio comes in at 0.26%, while VEIPX's is 0.28%.
