Vanguard launched the first index fund in the 1970s and has been a leader in low-cost investing ever since. The premise of cheap investing is simple. Lower fund fees allow a larger share of investment returns to be passed on to shareholders. Vanguard lives the premises with its index funds as well as its actively managed funds. If you are looking for a cost-effective mutual or exchange traded fund (ETF) in any niche, including dividend stocks, the Vanguard fund family probably has what it takes.
Here are five inexpensive Vanguard dividend funds that can turn your portfolio into a cash machine.
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1. High Dividend Yield ETF
If your budget is very tight, a passively managed ETF is often a good choice. You save money in two ways. First, passive managed funds have lower operating expenses because there is no dedicated fund manager at the helm who is paid to trade. The investment decisions are essentially automated, usually to repeat a benchmark index.
And second, ETFs have a low minimum investment threshold. You only need to buy a single stock – or less than that if your broker supports a fractional ETF investment. Many investment funds, on the other hand, have a minimum investment requirement, which can amount to several thousand dollars.
The Vanguard ETF with high dividend yield (NYSEMKT: VYM)mark both the squares. The fund’s expenses are 0.06%, or $ 0.60 per year for every $ 1000 you invest. For a share price of about $ 100, you get exposure to 410 different dividend paying companies such as Johnson & Johnson, JPMorgan Chase, Bank of America, en Intel. VYM follows the FTSE High Dividend Yield Index to yield a dividend yield of approximately 3.1%.
2. Dividend Valuation ETF
VFU Dividend Valuation ETF (NYSEMKT: VIG) is also a passively-managed ETF, but the investment approach is slightly different. While VYM focuses on high-yield stocks, VIG invests in companies with rising dividends. The fund holds the NASDAQ US Dividend Achievers Select Index, a basket of companies that have increased their dividend for at least ten years in a row. An increasing dividend is particularly attractive to retirees, who need their income to rise with inflation over time.
The Vanguard Dividend Appreciation ETF also has an effective expense ratio of 0.06%. The portfolio contains 212 shares, and the best holdings are Walmart, Johnson & Johnson, Procter & Gamble, en UnitedHealth Group. The dividend yield is 1.67%.
3. Equity fund
If you prefer to actively manage with a fund manager, Vanguard Equity Investment Shares (NASDAQMUTFUND: VEIPX) can be a good fit. The fund has a minimum investment of $ 3000, but it returns a return of 2.65% from the 187 shares in its portfolio. These companies include Johnson & Johnson, JPMorgan Chase and Cisco systems. The expense ratio is 0.28%.
4. Dividend growth fund
Vanguard Dividend Growth Fund (NASDAQMUTFUND: VDIGX) is also an actively managed mutual fund with a minimum investment of $ 3,000. However, this portfolio is smaller, with only 40 positions. Nevertheless, the fund is well diversified in economic sectors.
VDIGX invests in companies that appear to be undervalued, which should increase value of the share price over time. Johnson & Johnson, UnitedHealth Group, McDonald’s, en American Express is the top stake and the dividend yield is 1.66%. The fund’s cost ratio is 0.27%.
5. Growth and Income Fund
Vanguard Growth and Income Fund Investment Shares (NASDAQMUTFUND: VQNPX)is also focused on share valuation as well as dividend income. The primary purpose of the fund is to outperform the S&P 500 index, which it did reach during the 12 months prior to January 31, 2021. Over longer periods, however, VQNPX returns followed just below the index.
The cost ratio is the least efficient of the funds on this list with 0.32%. VQNPX also has a minimum investment amount of $ 3,000. For these disadvantages, you have an enormous diversification – the portfolio contains almost 1,800 shares. More than 25% of these are technology businesses, but the fund also gives you exposure to healthcare, financial, communications and discretionary businesses. The average annual return over ten years is almost 13.5% and the current dividend yield is a modest 1.15%.
Or create your own dividend fund
You’ve probably noticed that Johnson & Johnson, JPMorgan Chase, McDonald’s and UnitedHealth appear in several of these fund portfolios. If you really want to keep your fees low, you can sidestep all fund expenses by investing individually in these and other dividend stocks. It is a viable strategy if your broker does not charge your trading fees and you are willing to manage the portfolio on your own.
To follow that route, you must own at least 20 shares. This way you are not too dependent on any of them. You can also choose a broker that supports fractional investments to keep your buying costs as low as possible.
This article represents the opinion of the author, who may not be in agreement with the ‘official’ recommendation position of a Motley Fool premium advisory service. We are furry! When we question an investment thesis – even one of our own – it helps us all to think critically about investing and to make decisions that help us become smarter, happier and richer.