5 Best Vanguard Dividend Funds
By: Ned Piplovic,
Investing a portion of a portfolio across several funds from the same provider, such as the best Vanguard dividend funds, can offer investors protection from market fluctuations and deliver long-term returns.
The five best Vanguard dividend funds on the list below offer a combination of high dividend income and steady capital gains and produce robust total returns. Additionally, all of these funds have also delivered double-digit percentage total returns over the past three and five years. One of the funds has been established in 2017 and, therefore, has a performance history of only three years.
5 Best Vanguard Dividend Funds: #5
Vanguard Intermediate-Term Corporate Bond Index Fund Institutional Shares (NASDAQ:VICBX)
This low-cost index fund invests in U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility and financial companies. The vast majority of the fund’s securities — 95.3% — had maturities between five and 10 years.
As of January 7, 2021, the fund had $43.5 billion in net assets spread across 2,044 bonds. The average net maturity was 7.5 years, with an average duration of 6.4 years and a 1.6% yield to maturity.
The fund’s most recent monthly dividend distribution was $0.07. The $0.92 annualized dividend payout yields 2.6%.
After an sharp decline in March of 2020, the share price hit its 52-week low of 27.45. However, after reversing direction, the share price rose considerably to close at its new all-time high of $32.32 and currently trades very close to this, at $32.12. Combined with the 2.6% yield, the fund delivered a total return of 10.9% over the trailing 12 months and 22.3% over the last five years.
5 Best Vanguard Dividend Funds: #4
Vanguard Emerging Markets Bond Fund Investor Shares (NASDAQ:VEMBX)
This fund invests nearly 60% of its assets in the bonds that are issued by emerging market economies. Like other bond funds, the fund is subject to interest rate risk. Interest rates increases can reduce the prices of the fund’s underlying bonds, which will reduce the fund’s overall net asset value. Additionally, the fact that bonds in emerging markets tend to have higher volatility and lower liquidity than bonds in developed countries is another risk factor to consider.
As of January 7, 2021, the fund’s $1.3 billion total net assets across 205 holdings had an average effective maturity of 12.1 years and average duration of 7.4 years. Mexican bonds had the highest share of assets with 11.1%. Panama (7.1%) and Columbia (5.0%) rounded out the top three countries by share.
The fund distributes dividends monthly and the current annualized dividend of $0.55 yields 3.3%, much of which came from its routine end-of-year special dividend, comprising $0.15 of the payout. In the trailing 12 months, the fund has rewarded investors with total returns of 17.7% and 32.8% in the last 3 years.
5 Best Vanguard Dividend Funds: #3
Vanguard Real Estate Index Fund Institutional Shares (NASDAQ:VGSNX)
This fund invests in real estate investment trusts (REITs) that purchase office buildings, hotels, and other real estate property. Because REITs often follow trends opposite from stocks and bonds, this fund can offer some portfolio diversification. While REIT’s generally pay higher dividends, the narrow scope of this fund and potentially higher volatility are risk factors to keep in mind.
As of January 7, 2021, the fund had $58.6 billion in total net assets. These assets were spread across 180 holdings with the top 10 holdings accounting for more than 46% of total assets. The fund has hiked its annual dividend eight times in the past nine years and its current $0.73 annualized dividend yields 4.1%.
The share price closed on January 7, 2021 at $18.07, and although it has suffered in the trailing 12 months — dropping 7.1% in its stock price — the fund has consistent long-term returns of 14.5% in the last 3 years and 27% in the last 5 years.
5 Best Vanguard Dividend Funds: #2
Vanguard Long-Term Corporate Bond Index Fund Institutional Shares (NASDAQ:VLCIX )
This low-cost index fund invests in U.S. dollar-denominated, investment-grade, fixed-rate, taxable securities issued by industrial, utility and financial companies, with maturities greater than 10 years. Long-term bonds also tend to be more sensitive to interest-rate changes. Rising interest rates can reduce the price of bonds, which lowers the fund’s share price.
As of January 7, 2021, the fund held $6.4 billion in total assets allocated across 2,424 individual bonds, with an average effective maturity of 23.9 years and an average duration of 15.1 years. Nearly 70% of the fund’s assets are in bonds from the Industrial sector. With roughly 17% of assets in Financial sector bonds and 12% in Utilities, the top three sectors account for 99% of the fund’s assets.
The fund pays a $0.09 monthly dividend which is equivalent to a $1.17 annualized payout and a 3.3% forward dividend yield. While the fund has performed well in the trailing 12 months — it rewarded investors with 9.8% unadjusted returns in stock growth for a total return of 13.1% — those holding the fund for the past few years have been better rewarded still. It has returned 28.2% returns in the last 3 years and 56.7% in the last 5.
5 Best Vanguard Dividend Funds: #1
Vanguard Long-Term Investment-Grade Fund Investor Shares (NASDAQ:VWESX)
This fund provides diversified exposure to medium-and high- quality investment-grade corporate bonds with an average maturity of 15 to 25 years. In line with its primary goal, the fund invests primarily in corporate bonds. Only a small share of assets is allocated in taxable municipal bonds.
This fund is well suited for investors who are looking for a security that delivers interest income. However, these investors must be aware of the increased risk from interest rate fluctuations. Interest rate increases can reduce the price of the bonds in the portfolio, which will reduce the fund’s share price. Interest rate changes have higher impact on bonds with longer-term maturities, such as the 15 to 20 years included in this fund.
As of January 7, 2021, the fund’s 1,241 bonds had a total net asset value of over $21 billion. Bonds from the Industrial sector represent the majority of assets with a 50.2% share. Financial sector bonds with 18.8% share and Utilities with a 15.4% share round out the top three sectors represented. These three sectors, when combined, account for nearly 90% of the fund’s total assets. The price currently hovers around $11.49 and has grown 11.2% in the trailing 12 months. In the last 3 and 5 years, it has grown 28.6% and 52.4%, respectively.
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Ned Piplovic is the assistant editor of website content at Eagle Financial Publications. He graduated from Columbia University with a Bachelor’s degree in Economics and Philosophy. Prior to joining Eagle, Ned spent 15 years in corporate operations and financial management. Ned writes for www.DividendInvestor.com and www.StockInvestor.com.