Market Overview

Time To Appreciate This Cheap Vanguard Dividend ETF

Time To Appreciate This Cheap Vanguard Dividend ETF

With interest poised to remain low and payout growth likely to expand this year, dividend stocks and the related exchange traded funds could be set to deliver for investors again in 2020.

What Happened

Enter the Vanguard Dividend Appreciation ETF (NYSE: VIG), the largest U.S. dividend ETF by assets. At the end of last year, VIG had $42.1 billion in assets under management. Two of the primary reasons for VIG's popularity are its low fee and its emphasis on dividend growth stocks.

The Vanguard fund charges just 0.06% per year, or $6 on a $10,000 investment, making it one of the least expensive funds its category. Additionally, VIG follows the NASDAQ US Dividend Achievers Select Index, which requires that member firms have dividend increase streaks of at least 10 years.

That combination of low costs and an emphasis on dividend growth helps VIG earn CFRA Research's focus ETF for February honors.

Why It's Important

“Overall, CFRA’s equity analysts find the stocks inside VIG to be attractively valued using CFRA STARS. Nine of the top-ten holdings at the end of 2019 were Buy or Strong Buy recommendations, including Abbot Laboratories and Comcast,” said CFRA Director of ETF & Mutual Fund Research Todd Rosenbluth in a note out Monday. “In addition, the portfolio is deemed to incur low risk considerations based on consistent earnings, as well as dividend, records.”

Home to 182 stocks, VIG allocates 26.70% of its weight to the industrial sector while the consumer services and healthcare sectors combine for 32% of the ETF's roster.

For now, VIG's tech exposure is just 9.40%, with over half that allocated to Microsoft (NASDAQ: MSFT), but the fund's weight to that sector should increase as more technology stocks meet the 10-year payout hike requirement.

What's Next

“VIG also stands out for owning more than a strong collection of holdings. The fund charges a minuscule 0.06% expense ratio and trades over one million shares daily with a tight bid/ask spread,” said Rosenbluth. “While the fund is designed to be a low volatility strategy, VIG’s standard deviation is relatively low compared to its equity category.”

CFRA has an Overweight rating on the Vanguard dividend fund. That's the highest rating the research firm assigns to ETFs in its coverage universe.

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