If you know you’ll need bigger and bigger dividend payments in the future, it’s important to plan for that now. One simple option for passive income is investing in the Vanguard Dividend Appreciation ETF (VIG). This ETF holds a basket of dividend-paying stocks that have a track record of increasing their payouts over time.
ETFs are a great way to diversify your holdings, as they typically hold a range of individual equities. The Vanguard Dividend Appreciation ETF specifically tracks the S&P U.S. Dividend Growers Index, which includes companies that have raised their dividends for at least 10 consecutive years. This index currently has 338 eligible tickers, most of which continue to grow their dividends beyond the initial milestone.
While the fund’s trailing dividend yield of 1.6% may not seem impressive at first glance, it’s important to consider the bigger picture. Investing in high-yielding stocks can be risky, as these companies may not have the capacity to grow their dividends over time. In contrast, the Vanguard Dividend Appreciation ETF has a history of increasing its dividend payments. For example, the fund’s per-share payment has increased by roughly 50% over the past five years and more than doubled over the past decade.
Research by Hartford indicates that stocks of companies with a consistent dividend growth policy have historically outperformed non-dividend payers. These companies tend to be well-run operations that are capable of handling various challenges effectively. In fact, there’s a 70% chance that a strong dividend-paying stock will outperform the S&P 500 in any given year.
If you’re looking for a hands-off approach to passive income, the Vanguard Dividend Appreciation ETF is a solid choice. You won’t need to actively manage your investments, as the fund will automatically adjust its holdings based on changes in the underlying index. All you need to decide is whether to reinvest the dividends or not.
In conclusion, planning for bigger dividend payments in the future requires a strategic approach to investing. By choosing reliable dividend-paying stocks like those in the Vanguard Dividend Appreciation ETF, you can set yourself up for long-term passive income growth. Remember, simplicity is often key when it comes to building a successful investment portfolio.
