Vanguard ETF: Balancing Tech Investments with Passive Income

The technology sector has outperformed the S&P 500 over the past three, five, and ten years. Companies like Apple, Nvidia, Microsoft, and Broadcom have seen significant value increases, attracting many investors primarily for their growth potential, rather than their dividend yields.

However, there is a way to invest in technology stocks while also obtaining a solid dividend yield. The Vanguard Dividend Appreciation ETF (VIG 0.19%) is an exchange-traded fund that offers a combination of technology exposure and higher-than-average dividends compared to the S&P 500.

Growth and Income Focused

The Vanguard Dividend Appreciation ETF has over 330 holdings and an impressively low expense ratio of just 0.06%. This means you pay only $6 for every $10,000 invested, making it a cost-effective option for diversifying your portfolio. The fund's price-to-earnings (P/E) ratio is approximately 25, and it boasts a dividend yield of 1.7%, both of which beat the Vanguard S&P 500 ETF, which has a P/E of 27 and a yield of 1.2%.

What sets this fund apart from other high-yield ETFs is its focus on high-quality growth stocks. Some of its largest holdings include Apple, Microsoft, and Broadcom, alongside well-known companies such as JPMorgan Chase and UnitedHealth Group. Instead of near-zero dividend yields, this ETF prioritizes businesses with strong earnings and increasing dividends.

Sector Diversity

More than 83% of the ETF's investments are concentrated in five main sectors: technology, financials, healthcare, industrials, and consumer staples. While these sectors operate quite differently, many companies within them use dividends as a way to reward shareholders.

For example, Apple has consistently increased its dividend for 13 years, while Microsoft has done so for 15 years. Broadcom has increased its dividend by over 80% in just five years. In the finance sector, firms like JPMorgan and Bank of America have also maintained annual dividend raises for over ten years.

The industrial sector includes prominent players such as Caterpillar, Honeywell International, Union Pacific, and Lockheed Martin. These firms typically feature P/E ratios that are lower than the S&P 500, while offering yields that exceed the index, contributing to the overall value of the ETF.

Healthcare and consumer staples make up 26% of the ETF. Major companies like UnitedHealth, Costco Wholesale, Procter & Gamble, Walmart, Johnson & Johnson, and AbbVie are known for their reliability in maintaining dividend growth, regardless of market conditions.

A Simple Investment Choice

The Vanguard Dividend Appreciation ETF serves as a practical investment option for those seeking a balanced mix of quality businesses poised for earnings and dividend growth. It may be a great alternative for investors wanting exposure to stocks that pay dividends rather than those that do not. This fund strategically avoids unprofitable growth stocks or those lacking stable earnings growth.

In summary, the Vanguard Dividend Appreciation ETF presents a straightforward and efficient means to invest in the market while fostering passive income.

ETF, Technology, Dividends