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Dividend ETF Lagging S&P 500: Why?
1 Dec
Summary
- Vanguard Dividend ETF tracks S&P U.S. Dividend Growers index.
- Fund holds 338 stocks with a median market cap of $287 billion.
- S&P 500 has outperformed VIG due to AI boom stocks.
Exchange-traded funds (ETFs) provide a straightforward investment avenue, bundling various stocks under a single ticker. The S&P 500 index funds are a popular choice, known for their historical performance. However, investors prioritizing dividends might find the S&P 500's current yield of 1.1% notably low.
For those seeking higher yields, the Vanguard Dividend Appreciation ETF (VIG) presents an alternative with a 1.6% yield, focusing on dividend growth stocks. VIG aims to mirror the S&P U.S. Dividend Growers index, currently holding 338 stocks with a median market capitalization of $287 billion. Its largest sectors are information technology and financials, with top holdings including major companies like Microsoft and Apple.
In recent years, the S&P 500 has surpassed VIG's performance. This divergence is primarily driven by the artificial intelligence boom, favoring high-growth stocks such as Nvidia and Tesla. These companies often do not meet VIG's criteria, which typically requires a 10-year history of increasing dividends, thus explaining the performance gap.
