Dividends are often misunderstood by investors, with some believing they are only suitable for retirees looking for income or that companies paying dividends lack growth potential. However, dividends should actually excite investors, as they are a sign of a company’s profitability and ability to share its success with shareholders. While some dividend stocks may offer high yields with little growth, there are also dividend-growth stocks that provide both increasing payouts and strong business performance.
One way to invest in dividend-growth stocks is through index funds like the Vanguard Dividend Appreciation ETF (VIG). This fund tracks the S&P U.S. Dividend Growers Index and holds a diversified portfolio of 337 companies. By investing in VIG, investors can enjoy a lifetime of passive income that grows over time.
Vanguard, the company behind VIG, is a trusted name in the investment world with a long history of providing quality index funds. Founded in the mid-1970s by John Bogle, Vanguard is known for its passive investing strategies and is considered the world’s largest mutual fund company. One unique aspect of Vanguard is its ownership structure, which aligns the interests of the company with those of its investors.
The appeal of dividend-growth investing lies in the fact that companies increase their dividends over time, providing investors with a growing stream of passive income. By reinvesting dividends, investors can further enhance the compounding effect and build wealth over the long term. The Vanguard Dividend Appreciation ETF has a track record of increasing its quarterly dividend by almost 800% since 2006, with a blended earnings growth rate of around 12%.
In addition to providing passive income, the Vanguard Dividend Appreciation ETF also offers the potential for capital gains. While it has slightly lagged behind the S&P 500 in recent years due to its lower exposure to technology stocks, the fund remains a solid choice for investors seeking both income and growth.
Diversification is key to a successful investment strategy, and the Vanguard Dividend Appreciation ETF offers a well-rounded portfolio with exposure to a variety of industries. With only about 25% of its holdings in technology stocks, including Apple and Microsoft, the fund provides a level of diversification that may be lacking in other growth-oriented funds and indexes.
Before investing in the Vanguard Dividend Appreciation ETF, it’s important to consider all factors and do thorough research. While this fund may not have made the list of the 10 best stocks identified by the Motley Fool Stock Advisor team, it still offers a solid option for investors looking for passive income and long-term growth potential. By understanding the benefits of dividend-growth investing and the advantages of index funds like VIG, investors can make informed decisions to build wealth over time.
