Vanguard Dividend Appreciation ETF Remains a Star

Key Morningstar Metrics for Vanguard Dividend Appreciation ETF

• Morningstar Medalist Rating

  : Gold

• : High
• : Above Average
• : High

Vanguard Dividend Appreciation ETF VIG pulls in stable, profitable firms that have increased their dividend payments for over a decade. This simple, repeatable approach and low costs form a long-term edge over peers.

This strategy tracks the S&P US Dividend Growers Index, which targets US stocks that have increased their dividend payments for at least 10 consecutive years. It eliminates the highest-yielding names from that cohort to ensure its holdings are financially stable and more likely to continue making dividend payments. The index weights its holdings by their free-float-adjusted market cap, which leverages the market’s collective wisdom and mitigates turnover and the associated trading costs. It also limits individual stocks to 4% of the portfolio at each annual rebalance to promote diversification.

Targeting stocks with 10 years of dividend growth is a strict hurdle that provides a big advantage. It indirectly targets profitable companies that not only have the capacity to increase their dividend payments but also a willingness to do so. Combining yield and quality results in a balanced portfolio of more than 300 companies. However, if a company misses a single dividend payment, it would have to wait 10 years before it is welcomed back. For example, Apple AAPL and ExxonMobil XOM didn’t join the portfolio until 2023 after a decade of increasing dividends. Still, this is a worthwhile trade-off that keeps the portfolio full of high-quality companies that should continue to increase their dividends.

The strategy’s strict requirements tend to weed out recent highflyers. Magnificent Seven stocks Amazon.com AMZN, Tesla TSLA, Alphabet GOOGL, and Nvidia NVDA are among the biggest stocks missing from this portfolio. These omissions can cause diverging performance relative to large-blend

peers in the short term, but this strategy should have smoother and more consistent performance over the long run. Likewise, excluding the highest-yielding eligible stocks reduces the portfolio’s exposure to value traps without giving up the fund’s yield advantage over the broad market.

A portfolio of high-quality, stable companies should be tough to beat on a risk-adjusted basis over the long haul. This strategy’s low expense ratios further carve out a durable edge.

Vanguard Dividend Appreciation ETF: Performance Highlights

The US ETF’s risk-adjusted performance has been solid over the past decade. It nearly kept pace with the return of its average peer despite 13% lower volatility, putting it ahead of its average peer in risk-adjusted terms.

Lower volatility is key to this fund’s success. It tends to outperform when markets drop, like when it beat the category index by 10 percentage points in 2022. The drawback is its potential for lackluster returns when markets trend higher. Indeed, the US ETF share class returned 16% annualized over the three years through August 2026, yet underperformed its category index by 5 percentage points annually during that time. Crucially, the fund has proved its ability to capture more of the market’s upside than downside, giving it an edge over its bogy in the long term.

Low costs provide another durable edge over competitors. Market-value-weighting and a simple, repeatable process reduce transaction costs, creating an advantage when coupled with one of the lowest fees in its category.