Vanguard launched the first index fund in the 1970s and has since become a leader in low-cost investments. The premise of low-cost investment is straightforward. Lower fund rates allow a larger share of investment returns to be passed on to shareholders. Vanguard lives up to this premise with its index funds, as well as its actively managed funds. If you’re looking for an economical mutual or foreign exchange (ETF) fund in any niche, including dividend stocks, the Vanguard family of funds probably has what you need.
Here are five low-cost 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 too tight, a passively managed ETF is usually a good choice. You save money in two ways. First, passively managed funds have lower operating expenses, because there is no dedicated fund manager in charge who is paid to trade. Investment decisions are essentially automated, usually to replicate a benchmark.
And second, ETFs have low minimum investment limits. You only need to buy a single share – or less than that, if your broker supports fractional investments in ETFs. Many mutual funds, on the other hand, have minimum investment requirements, which can be several thousand dollars.
THE Vanguard High Dividend Yield ETF (NYSEMKT: VYM)checks both boxes. Fund expenses are 0.06%, or $ 0.60 annually for every $ 1,000 you invest. For a share price of around $ 100, you gain exposure to 410 different dividend-paying companies, such as Johnson & Johnson, JPMorgan Chase, Bank of America, and Intel. VYM tracks the FTSE High Dividend Yield Index to deliver a dividend yield of approximately 3.1%.
two Dividend appreciation ETF
Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) it 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 increasing dividends. The background tracks the NASDAQ US Dividend Achievers Select Index, a basket of companies that have increased their dividends for at least 10 consecutive years. A rising dividend is particularly attractive to retirees, who need their income to rise with inflation over time.
The Vanguard Dividend Appreciation ETF also has an efficient expense ratio of 0.06%. The portfolio includes 212 shares, and the main stakes are Walmart, Johnson & Johnson, Procter & Gamble, and UnitedHealth Group. The dividend yield is 1.67%.
3. Capital income fund
If you prefer active management with a fund manager giving the cards, Vanguard Equity Income Investor Shares (NASDAQMUTFUND: VEIPX) it can be a good fit. This fund has a minimum investment of $ 3,000, but is generating a return of 2.65% of the 187 shares in its portfolio. These companies include Johnson & Johnson, JPMorgan Chase and Cisco Systems. The expense ratio here is 0.28%.
4. Dividend growth fund
Vanguard Dividend Growth Fund (NASDAQMUTFUND: VDIGX) it is also an actively managed mutual fund with a minimum investment of $ 3,000. This portfolio is smaller, however, with only 40 positions. Even so, the fund is well diversified in economic sectors.
VDIGX invests in companies that seem undervalued, which should increase the price of the shares over time. Johnson & Johnson, UnitedHealth Group, McDonalds, and American Express are the best holdings and the dividend yield is 1.66%. The expense ratio for this fund is 0.27%.
5. Growth and income fund
Vanguard Growth and Income Fund Investor Shares (NASDAQMUTFUND: VQNPX)it also aims at valuing shares, as well as dividend revenue. The fund’s main objective is to overcome the S&P 500 index, which was reached during the 12 months prior to January 31, 2021. In longer periods, however, VQNPX returns were just below the index.
The expense ratio is the least efficient of the funds on this list, at 0.32%. VQNPX also has a minimum investment value of $ 3,000. For these disadvantages, you get massive diversification – the portfolio includes around 1,800 shares. More than 25% of these companies are technology companies, but the fund also offers exposure to healthcare, finance, communication and consumer discretionary companies. The 10-year average annual returns are almost 13.5% and the current dividend yield is a modest 1.15%.
Or make your own dividend fund
You have 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 rates low, you can avoid all fund expenses by investing in these and other dividend stocks individually. It is a viable strategy if your broker does not charge trading fees and you are willing to manage the portfolio on your own.
To follow this path, plan to keep at least 20 shares. That way, you are not overly dependent on any of them. You can also choose a broker that supports fractional investments to keep your purchase costs as low as possible.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Questioning an investment thesis – even our own – helps all of us to think critically about investing and making decisions that help us become smarter, happier and richer.