1 Reason to Buy Vanguard Dividend Appreciation ETF (VIG)

Key Points

• The Vanguard Dividend Appreciation ETF isn’t the highest-paying dividend ETF.

• It focuses on companies that are expected to grow their dividends over time.

• The portfolio is a great combination of growth and income that long-term investors should pay attention to.

• 10 stocks we like better than Vanguard Dividend Appreciation ETF ›

With a roughly 1.7% yield as of this writing, the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) isn't exactly the highest-paying dividend ETF. Far from it.

However, the point of this ETF isn't to generate current income. Instead, it invests in an index of stocks that are likely to consistently raise their dividends over time, creating a growing income stream.

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

Why long-term investors should consider the Vanguard Dividend Appreciation ETF

Specifically, the Vanguard Dividend Appreciation ETF tracks the S&P U.S. Dividend Growers Index, which consists of large-cap stocks that have an established track record of growing their dividends every year. It is a weighted index, meaning that certain stocks make up more of the assets than others, and there are 337 stocks altogether.

Image source: Getty Images.

Like most Vanguard index funds, this one has an extremely low fee structure with an expense ratio of 0.05%, which means that for every $10,000 in assets, your annual investment costs will be just $5. To be clear, this isn't a fee you have to pay -- it will simply be reflected in the performance over time.

Because it isn't focused on stocks with a high current yield, it has more exposure to fast-growing companies than most dividend ETFs. Just to name one example, the top holding of the Vanguard Dividend Appreciation ETF is Broadcom (NASDAQ: AVGO), which has a dividend yield of only about 1% today, but has increased its payout by 82% over the past five years alone. Microsoft (NASDAQ: MSFT), with its 23-year streak of dividend increases, is the No. 2 holding.

The point is that although stocks like these don't have the highest dividend yields today, they could pay much more in five years, 10 years, 20 years, and beyond. If you're still a decade or more away from relying on your stock portfolio for income, the Vanguard Dividend Appreciation ETF can help you set up a future income stream without sacrificing near-term growth potential.

Should you invest $1,000 in Vanguard Dividend Appreciation ETF right now?

Before you buy stock in Vanguard Dividend Appreciation ETF, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Dividend Appreciation ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $636,563!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,108,033!*

Now, it’s worth noting Stock Advisor’s total average return is 1,047% — a market-crushing outperformance compared to 181% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of August 4, 2025

Matt Frankel has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Microsoft and Vanguard Dividend Appreciation ETF. The Motley Fool recommends Broadcom and recommends the following options: long January 2026 $395 calls on Microsoft and short January 2026 $405 calls on Microsoft. The Motley Fool has a disclosure policy.