Most investors probably don’t recognize the names Nate Most and Steve Bloom. However, these two men pioneered one of the most important vehicles for investors to generate returns – the exchange-traded fund (ETF).
Today, millions of people put their money in ETFs. Some of these funds are practically household names. Not all of them receive enough attention from investors, though, in my opinion.
The Vanguard Dividend Appreciation ETF(NYSEMKT: VIG) is arguably one of them. Is this ETF a buy now?
Image source: Getty Images.
If you appreciate fast-growing dividends, you’ll probably like the Vanguard Dividend Appreciation ETF. This fund attempts to track the performance of the S&P U.S. Dividend Growers Index. This index only includes U.S. companies that have consistently increased their dividends for at least 10 consecutive years, with one key caveat: it excludes the top 25% of the highest-yielding companies.
In total, the Vanguard Dividend Appreciation ETF owns positions in 338 stocks. Its largest holdings include top-tier dividend growers such as Broadcom(NASDAQ: AVGO), Microsoft(NASDAQ: MSFT), Apple(NASDAQ: AAPL), JPMorgan Chase(NYSE: JPM), and Eli Lilly(NYSE: LLY). Together, these five stocks make up roughly 24% of the ETF’s portfolio.
Companies that consistently increase their dividend payments over the long term tend to have strong underlying businesses. A glance at the Vanguard Dividend Appreciation ETF’s top holdings confirms the quality of the fund’s portfolio.
The Vanguard Dividend Appreciation ETF offers a cost-effective way to invest in a diversified portfolio of high-quality stocks. Its annual expense ratio of 0.05% is significantly lower than the 0.73% average expense ratio of similar funds.
However, there are two key arguments against buying the Vanguard Dividend Appreciation ETF. Both focus on numbers.
Investors can obtain higher income from other funds. The Vanguard Dividend Appreciation ETF’s 30-day SEC yield is only 1.58%. You can get nearly double that yield from the Vanguard Energy ETF(NYSEMKT: VDE). If you don’t want a sector-specific fund, the Vanguard High Dividend Yield ETF(NYSEMKT: VYM) offers a 30-day SEC yield of 2.45%.
Yield isn’t everything, though. Total returns are more important to many investors. The Vanguard Dividend Appreciation ETF also falls short against several other alternatives in this regard.
In 2025, this ETF delivered a total return of 14.2%. That’s not bad, but it pales in comparison to the total returns of more than 35% from the Vanguard International High Dividend Yield ETF(NASDAQ: VYMI) and the Vanguard FTSE Europe ETF(NYSEMKT: VGK) last year.
The underperformance isn’t limited to the recent past, either. Since its inception in 2006, the Vanguard Dividend Appreciation ETF has delivered a total return of roughly 10%. Again, that isn’t a bad return. However, it’s significantly below the total turns since inception of 17% and 16.7% for the Vanguard Russell 1000 Growth ETF(NASDAQ: VONG) and the Vanguard S&P 500 Growth ETF(NYSEMKT: VOOG), respectively.
Do the yeas for the Vanguard Dividend Appreciation ETF outweigh the nays or vice versa? Probably the best answer is that it depends on your investment style.
If you seek a combination of growth and income, the Vanguard Dividend Appreciation ETF checks off both boxes. As we’ve seen, however, you’ll sacrifice some growth and income to achieve both.
On the other hand, if you’re primarily focused on growth, other ETFs are better picks. I think the two Vanguard growth funds previously mentioned – the Vanguard Russell 1000 Growth ETF and the Vanguard S&P 500 Growth ETF – will be more appealing to growth investors.
Similarly, income investors can easily find more attractive alternatives within the Vanguard family. For example, I especially like the Vanguard Utilities ETF(NYSEMKT: VPU), which offers a 30-day SEC yield of 2.7%. Utility stocks typically provide solid downside protection and, with the surge in construction of data centers, solid growth prospects these days.
The good news is that investors have numerous options available, regardless of their investment style. We can thank Most and Bloom for paving the way.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Keith Speights has positions in Apple and Microsoft. The Motley Fool has positions in and recommends Apple, JPMorgan Chase, Microsoft, Vanguard Dividend Appreciation ETF, and Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.
