Is Vanguard's Dividend Appreciation ETF A Buy, Sell, Or Hold? | VIG

Vanguard Dividend Appreciation ETF tracks the Nasdaq U.S. Dividend Achievers Select Index. The index selects companies with 10+ consecutive years of annual dividend increases and removes the 25% highest-yield stocks to avoid dividend traps. This approach provides exposure to cash-rich companies that grow quickly and tend to raise dividends year after year. The ETF’s long-term performance has shown strong market outperformance alongside dividend growth. The “dividend appreciation” label can be misleading for investors expecting yield-on-cost compounding. The fund cycles out stocks as they shift into slower growth and higher yield phases and removes holdings after a bad year, limiting income compounding compared with holding individual dividend growth stocks.

"VIG tracks the Nasdaq U.S. Dividend Achievers Select Index (formerly the Mergent Dividend Achievers Select Index). It is the largest dividend-focused ETF on the market. The methodology for inclusion is 10+ consecutive years of annual dividend increases, minus the 25% highest-yield stocks to filter traps. What this ends up doing is that it gets you access to companies that are cash-rich and are growing fast. These are the exact same companies that tend to hike their dividends significantly year after year."

"The growth investors who invest in VIG invest with that logic and have been proven right. However, the investors who invest in VIG because of the dividends should know that the "dividend appreciation" label on this ETF is a misnomer. There's dividend appreciation, minus the compounding You are getting a 1.5% dividend yield, but this yield is not going to grow like it would if you bought and held an individual dividend growth stock."

"The fund is constantly cycling out stocks the moment they mature into the slow-growth, high-yield phase that creates yield-on-cost wealth. It also ejects stocks the instant they have one bad year. You shouldn't mistake VIG as a long-term vehicle for compounding your income. For example, if you bought t"

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