Vanguard’s 5 Best Dividend ETFs Merit Consideration
By: Ned Piplovic,
With current investment providers offering thousands of exchange-traded funds (ETFs), even individual and part-time investors easily can find the best dividend ETFs for their particular investment strategy by going to a single provider.
If that single provider happens to be The Vanguard Group, the offerings become even better than average. Since Vanguard is the world’s second-largest provider of exchange-traded funds (ETFs) – trailing only BlackRock’s iShares – finding the best dividend ETFs to fit any investment portfolio strategy becomes only a matter of choosing the ETF type or sector.
The list below includes the five best dividend ETFs from the Vanguard Group in terms of total return over the past year, as well as dividend yield. Vanguard offers ETFs with higher yields and higher total returns over the past 12 months than the five ETFs listed below.
However, some of those funds with total returns in excess of 10% pay dividend yields of less than 0.4%. Alternatively, few of the ETFs with dividend yields of more than 4% saw their unit price drop more than 10% in recent years, thus delivering total losses of more than 8% during the trailing 12 months. The list below focuses on funds with balanced performance of steady dividend income and asset appreciation.
Vanguard’s 5 Best Dividend ETFs — #5:
Vanguard Real Estate ETF (NYSE:VNQ)
With a goal of closely tracking the return of the MSCI US Investable Market Real Estate 25/50 Index, this fund invests in stocks issued by real estate investment trusts (REITs), companies that purchase office buildings, hotels and other real property.
As of October 31, 2018, the fund had $56.7 billion of total net assets distributed across 184 individual holdings. More than 60% of the fund’s total assets comprise just three types of real estate investment trusts (REITs) – Specialized REITs (31.4%), Retail REITs (15.2%) and Residential REITs (13.6%).
While the unit price declined significantly during the first quarter of the trailing 12 months, the price gained 11.7% above the 52-week low from February 2018 and pulled within 4.3% of the price from 12 months earlier. The unit price shortfall erased the distribution income payouts over the past year. However, the three-year total return was nearly 19% and 45% over the past five years.
Vanguard’s 5 Best Dividend ETFs — #4:
Vanguard Total International Bond ETF (NYSE:BNDX)
This fund attempts to track the performance of the Bloomberg Barclays Global Aggregate ex-USD Float Adjusted RIC Capped Index and is hedged in U.S. dollars. As of October 31, 2018, the fund had more than $111 billion in total assets, including more than 5,600 individual bonds. Corporate and government bonds from Japan account for 20.4% of total assets. Bonds from Germany (12.1%) and Italy (11%) round out the top three bond-issuing countries in the fund and combine with Japanese bonds for more than half of the fund’s assets. The remaining assets comprise bonds and short-term reserves from the United Kingdom, Canada, Spain, the Netherlands and the United States.
The fund’s distribution currently yields 2.26% and the annual payout advanced at an average growth rate of more than 40% per year over the past five consecutive years. Over the past 12 months, the unit price experienced minimal fluctuations. The difference between the 52-week lows and highs is merely 2.5% and the closing price of $54.56 on November 18, 2018, is in the middle between the two extremes. While the unit price is slightly lower than one year ago, the total return over the past 12 months was a minimal 1.5%, with three and five-year total returns of 8.5% and 18%, respectively.
Vanguard’s 5 Best Dividend ETFs — #3:
Vanguard Total Stock Market ETF (NYSE:VTI)
Unlike the following two funds that focus on investing into large-capitalization companies, the Total Stock Market ETF invests in a wider selection of U.S. market equities across companies of all sizes and market capitalizations. With massive total net assets of more than $780 billion, the Vanguard Total Stock Market ETF comprised more than 3,600 individual holdings, as of October 31, 2018.
With a combined share of more than 50%, the Technology (19.9%), Financials (19.5%) and Health Care (13.6%) sectors dominate the fund’s share of total assets. The top five individual holdings – Apple, Inc. (NASDAQ:AAPL), 3.4%; Microsoft Corporation (NASDAQ:MSFT), 3.0%; Amazon.com Inc. (NASDAQ:AMZN, 2.4%; Alphabet, Inc. (NASDAQ:GOOG), 2.3% and Berkshire Hathaway Inc. (BRK-B) 1.5% – account for 12.6% of total assets.
Since its formation in 2008, the fund has returned more than 35% on invested assets. Over the past 12 months, VTI’s distributions yielded 1.83% and combined with the unit price growth for a total return on investment of more than 7.3%. Over the past three and five years, the total returns were 40% and 61.5%, respectively.
Vanguard’s 5 Best Dividend ETFs — #2:
Vanguard Mega Cap Value ETF (NYSE:MGV)
This ETF seeks to provide investment returns that track the performance of the CRSP US Mega Cap Value Index. The index targets large-capitalization companies from the U.S. equities markets. The fund’s nearly $2.2 billion of total assets are spread across 150 individual equity holdings.
The top 10 holdings account for one third of the fund’s total assets. Of these holdings, the top five companies – Microsoft Corporation (NYSE:MSFT ), 7.7%; Berkshire Hathaway Inc. (BRK-B), 3.80%; Johnson & Johnson (NYSE:JNJ), 3.5%; JPMorgan Chase & Co. (NYSE:JPM) 3.4% and Exxon Mobil Corporation (NYSE:XOM), 3.2% – combine for 21.6% of the fund’s total assets. From a sector exposure aspect, three sectors – Financials (23.3%), Health Care (18.4%) and Technology (15.9%) – constitute more than half of the total assets.
The fund’s current dividend yield is 2.37% and reflects eight consecutive years of annual payout hikes and unit price enhancement of more than 50% over the same period. The unit price growth and distribution income combined for a 9.2% total return over the past 12 months, 41% over the past three years and nearly 60% over the past five years.
Vanguard’s 5 Best Dividend ETFs — #1:
Vanguard Mega Cap ETF (NYSE:MGC)
This ETF tracks the performance of the CRSP US Mega Cap Index. As of October 31, 2018, the fund’s 263 individual holdings combined for total assets of more than $1.6 billion. The fund’s exposure to the largest U.S. stocks represent approximately the top 70% of market capitalization to give investors easy diversification.
The fund’s top three sectors – Technology (22.5%), Financials (18.0%) and Health Care (14.7%) – account for more than 55% of total assets. The addition of two more sectors with double-digit shares – Consumer Services (14.1%) and Industrials (10.5%) – pushes the total assets of those sectors to almost 80%.
With Technology as the most represented sector, it comes as no surprise that four out of the top five individual holdings by share of total assets are technology companies – Apple Inc. (NASDAQ:AAPL), 4.8%; Microsoft Corporation (NASDAQ:MSFT), 4.1%; Amazon.com Inc. (NASDAQ:AMZN, 3.4% and Alphabet, Inc. (NASDAQ:GOOG), 3.3% – with a combined-asset share of 15.6%. Berkshire Hathaway Inc. (BRK-B) rounds out the top five holdings with a 2.0% share of assets. The top 10 holdings account for more than 26% of total assets.
The fund’s current annual distribution yields only 1.87%. However, the fund hiked its annual distribution amount for the past eight consecutive years at an average growth rate of more than 8% per year. While the unit price declined 6.8% from its 52-week high in late September, the price is still 6.5% higher than it was one year earlier, 14% above the 52-week low in April 2018 and more than 50% higher than it was five years ago.
The combined total return over the past year was 8.5%, with a three-year total return reaching nearly 42% and the five-year return exceeding 66%.
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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.