The best Vanguard dividend funds combine three great tastes: Dividend income, the relative stability of dividend-paying stocks, and the low fees that investors have come to expect from this leading asset manager and fund provider.
We can’t take for granted the idea that dividend mutual funds will invest with an eye toward both yield and quality. Some products pay above-average dividends today but risk volatility or even future cutbacks in their payouts because of the companies they choose to hold. So if you’re in the market for a dividend-paying mutual fund, you need to select one based on more than just its “headline” yield.
Let me help you with your search by narrowing down the field to a handful of great, low-cost Vanguard dividend funds.
Disclaimer: This article does not constitute individualized investment advice. Individual securities, funds, and/or other investments appear for your consideration and not as personalized investment recommendations. Act at your own discretion.
Our Favorite Vanguard Dividend Mutual Funds
Vanguard’s best dividend mutual funds include a variety of strategies and flavors—in other words, no single reader is going to need each fund on this list, but there should be something for virtually everyone.
Importantly, all of these funds are established dividend investments with low cost structures. So not only can you invest with confidence in one or more of these options if they align with your personal investing needs, but you can be assured that they’ll collect very little of your money by way of fees.
Please note that every one of the best Vanguard mutual funds on this list requires an investment of at least $3,000 to get started. However, the majority of these picks have an exchange-traded version that you can purchase for the price of one share (or less, if you have a brokerage account that allows fractional shares). Where appropriate, I’ve mentioned the Vanguard ETF alternatives to these dividend funds to provide flexibility for those who might need it.
The following are a handful of selections from our full list of the best Vanguard mutual funds.
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Vanguard Dividend Appreciation Index Fund Admiral Shares
- Style: U.S. dividend-growth stock
- Management: Index
- Assets under management: $123.8 billion*
- Dividend yield: 1.6%
- Expense ratio: 0.07%, or 70¢ per year for every $1,000 invested
- Minimum initial investment: $3,000
The Vanguard Dividend Appreciation Index Fund Admiral Shares (VDADX) tracks the S&P U.S. Dividend Growers Index, which comprises high-quality companies that have ample headroom in their profits to raise dividends, as well as a track record of recent increases (hence “dividend appreciation”). In fact, VDADX doesn’t just view high yield as a lesser priority—the fund’s underlying index excludes the 25% highest-yielding companies, implying that massive dividends can be a liability.
Wait, what?
It all comes down to math. Dividend yield is just the dividend payment divided by the share price, annualized. That means a dividend increase can improve the yield … but so can a stock-price decline. A high dividend, then, is sometimes just the result of spiraling shares, reflecting a troubled company who might not be able to sustain its cash distributions for much longer.
Related: 11 Best Vanguard Funds for the Everyday Investor
For what it’s worth, VDADX also excludes real estate investment trusts (REITs)—a group of stocks we’ll get into later. But this likely has less to do with their typically high yields, and more to do with the fact that their dividends aren’t “qualified” and thus taxed as ordinary income at your marginal tax rate.
So, if VDADX isn’t set up to give us a high yield, what exactly are we getting?
Vanguard Dividend Appreciation Index Fund is a portfolio of 340 dividend-growth stocks. They’re not big on current yield, but the hope is that our future “yield on cost” (the yield on the price you originally paid) might grow significantly as we hold the fund through the years. Not to mention, dividend growth is generally a sign of financial quality, and thus holding this Vanguard index fund is a way to own high-quality companies. And that’s why VDADX is one of Vanguard’s best dividend funds.
VDADX is a large-cap “blend” fund,** meaning it holds both value stocks and growth stocks. The fund is market cap-weighted, so the larger the company, the more assets the fund allocates to holding its shares; VDADX’s biggest positions right now are in dividend growers such as chipmaker Broadcom (AVGO), phone giant Apple (AAPL), and Big Pharma leader Eli Lilly (LLY).
There’s an exchange-traded version of this fund, too: the Vanguard Dividend Appreciation ETF (VIG, 0.04% expense ratio), which you can buy for around $215 per share currently. VIG ranks as one of the 20 largest U.S. ETFs of any flavor as measured by assets. That reinforces the popularity of this strategy, even if the current yield doesn’t blow your hair back.
* Many Vanguard funds have multiple share classes, including ETFs. Listed net assets for Vanguard funds in this story refer to assets under management across all of a given fund’s share classes.
** There are different ways to define “cap” levels. We’re adhering to Morningstar’s definition, which says the largest 70% of companies by market capitalization within a fund’s “style” are large caps, the next 20% by market cap are mid-caps, and the smallest 10% by market cap are small caps.
Related: The 10 Best Dividend ETFs [Get Income + Diversify]
Vanguard High Dividend Yield Index Fund Admiral Shares
- Style: U.S. high-yield dividend stock
- Management: Index
- Assets under management: $92.3 billion
- Dividend yield: 2.4%
- Expense ratio: 0.08%, or 80¢ per year for every $1,000 invested
- Minimum initial investment: $3,000
If your focus is on the here and now, and you want a high current yield, you’ll likely be more interested in products like the Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX).
VHYAX tracks an index made up of companies with larger-than-average dividends. Its 560 components have been picked based on their current income potential—not hopes of bigger future paydays (though some holdings do grow their dividends, too). So it excludes companies like Apple that pay dividends but offer only modest yield. Instead, it has a bias toward longtime holdings such as JPMorgan Chase (JPM), Exxon Mobil (XOM), and Johnson & Johnson (JNJ) that pay significantly more than the average large-cap stock.
In the process, VHYAX provides decent sector diversification.
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Yes, financials make up about 20% of assets, but after that, four other sectors enjoy double-digit (or near-double-digit) weights. That includes a 15% position in tech dividend stocks—a respectable allocation given the technology sector’s reluctance to pay big dividends, but certainly less exposure than you would get in a typical large-cap stock fund. So be aware of these and other sector weightings as you consider how to layer this Vanguard dividend fund into your big-picture strategy.
Vanguard High Dividend Yield Index, like the aforementioned VDADX, explicitly excludes real estate investment trusts.
This fund is also offered in ETF form: The Vanguard High Dividend Yield ETF (VYM, 0.04% expense ratio) currently trades around $150 per share.
Related: 7 Best High-Yield Dividend Stocks: The Pros’ Picks
Vanguard International High Dividend Yield Index Fund Admiral Shares
- Style: International high-yield dividend stock
- Management: Index
- Assets under management: $20.1 billion
- Dividend yield: 3.6%
- Expense ratio: 0.16%, or $1.60 per year for every $1,000 invested
- Minimum initial investment: $3,000
Among Vanguard dividend funds, it’s difficult to find a higher yield than what’s offered by the Vanguard International High Dividend Yield Index Fund Admiral Shares (VIHAX).
VIHAX’s tracking index is designed to own international stocks with higher-than-average 12-month forward-looking yields. While it will hold large- and mid-cap stocks, a current 85/15 split leans heavily toward the former.
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It also has a significant preference for developed international markets (more established but slower-growing economies) over emerging markets (less established but “growthier” economies). European nations including the U.K. and Switzerland are tops at more than 40% of assets, followed by Pacific-region developed countries (28%), all emerging markets (21%), and North America developed markets (8%, all wrapped up in Canadian assets).
Vanguard International High Dividend Yield Index is rich with blue chips such as Nestlé (NSRGY), British bank HSBC Holdings (HSBC), and Japanese automaker Toyota (TM). These holdings produce a comparatively massive dividend yield of almost 4% that puts its high-yield U.S. counterparts to shame.
As a general rule, this income and stability makes VIHAX a fruitful holding during downturns across international equities, but it sometimes lags Vanguard International Dividend Appreciation when the market heads higher.
VIHAX’s exchange-traded version is the Vanguard International High Dividend Yield ETF (VYMI, 0.07% expense ratio), which goes for roughly $95 per share right now.
Related: 8 Best Stock Portfolio Tracking Apps [Stock Trackers]
Learn More About These and Other Funds With Morningstar Investor
If you’re buying a fund you plan on holding for years (if not forever), you want to know you’re making the right selection. And Morningstar Investor can help you do that.
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