Stock price appreciation often steals the spotlight. You buy a stock for $X, sell it for $Y, and the difference is your profit. However, dividends can significantly contribute to an investor’s total returns, and dividend exchange-traded funds (ETFs) can be excellent components of a portfolio.
Among the many dividend ETFs available, one that stands out is the Vanguard Dividend Appreciation ETF (VIG +0.09%). Although dividend ETFs aren’t typically seen as millionaire-makers, if VIG maintains its historical performance, it could be a compelling option for long-term investors.
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How feasible is $1 million?
Since its launch in April 2006, VIG has averaged 10% annual total returns. While not astronomical, these returns can compound significantly over time.
If you invest $500 monthly, with an average annual return of 10%, you could reach $1 million in approximately 31 years. Investing $1,000 or $2,000 monthly could achieve that goal in about 24 or 18 years, respectively.
The exact time depends on your investment amount and the returns you receive. However, with consistent investing, VIG could help you reach that million-dollar mark.
Vanguard Dividend Appreciation ETF
Today’s Change
(0.09%) $0.22
Current Price
$233.53
Key Data Points
AUM
$132B
Dividend Yield
1.56%
Expense Ratio
0.04%
Top Holdings
MSFT
4.69%
AAPL
4.52%
AVGO
4.36%
A different approach to dividends
While many dividend ETFs offer higher yields, VIG provides a lower yield of about 1.5%. However, its primary focus is on dividend growth rather than immediate yield.
VIG invests in companies that have consistently increased their annual dividends for at least 10 consecutive years, while avoiding the top 25% of highest-yielding stocks to steer clear of yield traps (high-yielding stocks with poor fundamentals).
VIG’s aggregate dividend payout has surged over 919% since inception, with a scheduled payment of $0.930 on Sept. 30, reflecting an 849% increase.
VIG Dividend data by YCharts.
VIG is led by blue chip companies
VIG emphasizes dividend growth over strict yield requirements, which results in a portfolio with a substantial tech component (25.60%). Its top three holdings are Microsoft (4.67%), Apple (4.50%), and Broadcom (4.34%). These companies may not be the first examples that come to mind for dividend stocks but boast impressive dividend histories.
Microsoft has raised its dividend for 22 consecutive years with a total increase of 133% over the past decade. Apple has increased its dividend for 14 years, with an 89% rise in the same period, while Broadcom has increased its payout for 15 consecutive years and surged 537% in the last decade.
VIG includes a wide range of industries, featuring many blue chip giants with strong shareholder-friendliness. It also invests in numerous Dividend Kings (companies with at least 50 consecutive years of dividend increases).
If you’re aiming for a million dollars, investing in a reliable dividend ETF that allows for passive management and reinvestment—as exemplified by VIG—might be hard to beat.
