Two Everlasting Vanguard Investment Funds Suitable for Both Growth and Dividend Enthusiasts
One method to motivate yourself to save for the long haul is to hold income-producing investments within your portfolio. This way, you'll receive a constant income flow over the years without needing to sell your investments. Exchange-traded funds (ETFs) offer a multitude of great choices for long-term investors, and you don't have to stick to solely growth stocks or just dividend stocks.
Two Vanguard funds that offer the best of both worlds, providing high dividends and promising growth opportunities, are the Vanguard Enhanced Dividend ETF (VYM 1.11%) and the Vanguard S&P 500 Value ETF (VOOV 0.03%). Let's examine why these ETFs might be suitable options for various types of investors.
Vanguard Enhanced Dividend ETF
The S&P 500 typically yields 1.3%, but you can receive a higher payout with the Vanguard Enhanced Dividend ETF, as its yield is 1.7%. Furthermore, your dividend income is likely to increase with this ETF, as it focuses on dividend growth. The fund includes stocks that have a strong history of boosting their dividend payouts over the years.
The actively managed fund holds shares of top dividend stocks such as UnitedHealth Group, ExxonMobil, and Home Depot. There are 338 stocks in the fund as of the end of September, providing investors with some excellent diversification across several sectors. Despite being focused on dividend growth, tech stocks account for 24% of the portfolio’s total weight, making that the largest sector, with financial stocks in the second place with a 20% representation.
By focusing on tech stocks and some of the world's largest companies, the Vanguard Enhanced Dividend ETF can allow you to earn some impressive returns over the long term while also collecting a growing dividend. For the most part, the fund has kept pace with the S&P 500 over the past 20 years. Additionally, with a low expense ratio of 0.12%, fees won't eat significantly into your returns.
Vanguard S&P 500 Value ETF
If a rising dividend isn't vital to you, then the Vanguard S&P 500 Value ETF might be a more suitable option. Its yield of 1.8% is currently greater than the Enhanced Dividend ETF's yield. This fund may not prioritize dividend growth stocks, but it still offers abundant solid income-producing investments at present.
By focusing on value stocks, the fund provides investors exposure to companies that are undervalued by the market, making them potentially attractive investments. Some top stocks in the fund are Costco Wholesale, Coca-Cola, and Procter & Gamble. It contains 320 stocks, which is not as diversified as the Enhanced Dividend ETF, but the potential for stronger long-term returns exists if its top holdings perform well.
Although economic conditions may not be ideal right now with inflation still causing difficulties for consumers, the economy should recover and continue to grow over the long term. Investing in this fund can be a great way to invest in the overall stock market. For a significant portion of the past 20 years, the ETF outperformed the S&P 500. This Vanguard fund also has a fairly low expense ratio of 0.04%.
Given the S&P 500's inflated value at the moment, opting for the Vanguard S&P 500 Value ETF might be the better choice today, as its more reasonable valuation could put it on track to generate better returns in the long run.
After considering the Vanguard Enhanced Dividend ETF and the Vanguard S&P 500 Value ETF as potential investments, one might decide to allocate a portion of their finance to these funds for diversifying their portfolio. By doing so, they can take advantage of these ETFs' income-generating capabilities, as both funds provide a steady flow of dividends.
Moreover, carefully considering one's investment objectives, such as whether prioritizing dividend growth or seeking a rising dividend is more important, can contribute to making informed decisions when investing in these ETFs. With both funds having low expense ratios, investors can maximize their returns while minimizing fees.
