Vanguard's best dividend funds can be a smart way for retired investors to get income or for long-term investors wanting to invest in quality stocks. Therefore, the best Vanguard funds for dividends can be smart investment choices for almost any type of investor. Combined with their low costs, the yields and performance of Vanguard dividend funds make them some of the best to buy on the market.
Investing in Vanguard Dividend Funds
Vanguard Investments is a mutual fund company that offers some of the best low-cost, no-load mutual funds available to investors today. Their dividend funds are among Vanguard's best funds. Dividends can be received as a source of income or they can be used to buy more shares of the mutual fund.
Most investors who buy dividend mutual funds are usually looking for a source of income, which is to say that the investor would like steady and reliable payments from their mutual fund investment. Because of their income-generating nature, dividend mutual funds are best-suited for retired investors.
But when dividends are re-invested, these funds can be smart choices for long-term investments as well. Also, dividend mutual funds, which are often categorized with value stock funds, tend to be less aggressive (less risky) than other types of funds, such as growth stock mutual funds.
Best Vanguard Funds for Dividends
When searching for the best Vanguard funds for dividends, we looked at stock mutual funds with the highest 30-Day SEC Yields. These yields will fluctuate over time, but you might want to consider buying these four mutual funds if you want dividends:
- Vanguard Utilities Index Adm (VUIAX) focuses on stocks in the utilities sector, which is highly sought for its high dividends. The portfolio holdings consist of large-cap U.S. stocks of utility companies, such as Duke Energy Corporation (DUK) and Southern Company (SO). As of November 2021, the current yield is 2.92%. The expense ratio for VUIAX is an attractively low 0.10%. However, this mutual fund is only offered in Vanguard's "Admiral" share class, which has a minimum initial purchase of $100,000. As an alternative, investors can buy the ETF version of the fund (VPU) for no minimum initial investment.
- Vanguard High Dividend Yield Index (VHYAX) is ideal for investors looking for income now with high yields for stocks. The portfolio consists primarily of large-cap value stocks of companies in the United States that pay high dividends compared to similar companies. As of November 2021, the current yield for VHYAX is an impressive 2.70%. The expense ratio for VHYAX is a rock bottom 0.08%, though the minimum initial purchase is $3,000.
- Vanguard Dividend Appreciation Index Fund (VDADX) is a large blend stock fund that provides exposure to U.S. companies with a history of increasing their dividends. It is ideal for investors who are growing a long-term portfolio. As of November 2021, its current yield is 1.60% with an expense ratio of only 0.08%, and the minimum initial purchase is $3,000.
- Vanguard Dividend Growth (VDIGX) is best for investors who are looking for reasonable dividends now but want to see the dividend payouts (yields) grow over time. The fund primarily focuses its holdings in U.S. large-cap value stocks with about 6.7% of the portfolio allocated to foreign stocks. As of November 2021, the current yield for VDIGX is 1.41%. The expense ratio is a low 0.26% and the minimum initial purchase is $3,000. Note: Since 2016, VDIGX had been open only to existing investors, but opened to all investors again as of August 1, 2019.
Investors should keep in mind that, although dividend mutual funds may pay high yields for current income, there is always principal risk involved with these investment securities. This means that, while the funds pay dividends, the funds can fluctuate in value and investors could potentially lose part of their principal investment amount.
However, fluctuations in market value are part of the nature of investing, especially with stocks and stock mutual funds. Therefore, Vanguard dividend funds are best suited for investors with a minimum of three years to invest.
Frequently Asked Questions (FAQs)
What is a dividend?
A dividend is a distribution of part of a company's earnings to certain shareholders. They can be paid out as cash or additional stock. Shareholders must vote to approve dividends. There are also dividend-paying mutual funds and ETFs.
What are dividend mutual funds?
A mutual fund is an investment vehicle that takes funds from many investors and pools them together to invest them into stocks, bonds, and other securities. Dividend mutual funds invest in stocks that pay dividends. The dividends can be paid in cash or reinvested in more shares.
The Balance does not provide tax, investment, or financial services and advice. The information is being presented without consideration of the investment objectives, risk tolerance, or financial circumstances of any specific investor and might not be suitable for all investors. Past performance is not indicative of future results. Investing involves risk including the possible loss of principal.