Vanguard Dividend Growth Re-Opened

[pb4uski]

I suspect that the theory is that companies that have the ability to grow their dividends have healthy earnings, and a whole lot of good things follow from strong earnings and growing dividends.

The flip side might be an argument that companies grow dividends only where they don't have opportunities to expand and earn more than their cost of capital so if a company is growing dividends then it may have limited expansion opportunities available to it.

 

[ESRwannabe]

The fund re-opened at the beginning of the month after being closed for three years. Did anyone else establish a position?

I did actually. Just $3k for now. Not sure if I will add some serious money to it or just leave it as is so I always have it as an option.

Its a nice complement to my large investments in Vanguard High Div Yield US and Foreign funds.

This is all in a taxable non-retirement account.

 

[ESRwannabe]

VDIGX is a dividend growth fund. It has nothing to do with high yield. Although the truth of the matter is that Vanguard's High Dividend Yield Indexes are not really high yield funds either.

Just FYI, Vanguard's High Div Yield funds take the Russell 1000 (large and mid cap stocks, i.e. 90% of US market cap). First it kicks out all companies that do not pay a dividend and all REITs. It then sorts all of those stocks that are left by yield and keeps the top 60%. Finally it then re-sorts the stocks by market cap and owns them by market cap weightings.

So, IMHO Vanguard High Div Yield is very similar to taking the total stock market and eliminating all non-dividend payers and REITs. They call this "high yield", but its not the same as most high yield funds which weight the stocks owned by yield, NOT market cap. Owning by market cap gives a very different portfolio.

Ok, back to Dividend Growth (VDIGX). This is a highly concentrated (40-50 stocks) fund. The goal is high dividend growth, not yield. This fund actually leans towards the growth sector. It doesn't cross the line into growth, but it rides that line.

This fund can invest up to 25% into foreign equities and currently has 9.62% in foreign stocks. This fund can also invest in REITs and has 2.42% in that sector. You can see a sector break down here:

https://seekingalpha.com/symbol/VDIGX/holdings

This fund has consistently beaten its index which is the Vanguard Div Appreciation Index, which is a market cap weighted index made up of companies that have raised their dividend for 10+ consecutive years.

Anyway, this is an actively managed fund. If you are ok with that and you are ok with the concentration (40-50) stocks, and you want to add some high dividend growth to your portfolio, then I think this is perhaps a good US focused option for that.

Note this fund pays dividend semi-annually and it pays capital gains. This is not a tax managed fund.

Here you can see what the past 10 years dividend growth has looked like. Its nothing spectacular, but it does have a high total return as well.

https://seekingalpha.com/symbol/VDIGX/dividends/dividend-growth

For comparison here is the dividend info for the ETF versions of Vanguard High Div Yield and Vanugard's Div Appreciation:

https://seekingalpha.com/symbol/VYM/dividends/dividend-growth

https://seekingalpha.com/symbol/VIG/dividends/dividend-growth

As you can see VDIGX has a 10 year avg div growth of 7.14%, VIG has 7.10% and VYM has 6.26%.

So, VDIGX does what it says it will do. It has a relatively high div growth rate.... or does it...

Here is one last comparison using the total stock market ETF.

https://seekingalpha.com/symbol/VTI/dividends/dividend-growth

Yes, you may be surprised to see that VTI has a 10 year div growth rate of 7.57%...

The total market indexes are actually very good for dividend growth, at least for the US. When you step outside the US its a very different story.

If you really want some good div growth in the US, you want to look at the mid and small cap sectors. I'll make another post after this with some info on those.

 

[ESRwannabe]

Ok here is data on Vanguard Small Cap ETF (the blend, value, and growth versions).

https://seekingalpha.com/symbol/VB/dividends/dividend-growth

https://seekingalpha.com/symbol/VBR/dividends/dividend-growth

https://seekingalpha.com/symbol/VBK/dividends/dividend-growth

The current div yield and 10 yr div growth rates are:
VB 1.54% yield and 9.45% div growth,
VBR 2.36% yield and 7.80% div growth,
VBK .66% yield and 11.15% div growth.

For midcap it is:

https://seekingalpha.com/symbol/VO/dividends/dividend-growth

https://seekingalpha.com/symbol/VOE/dividends/dividend-growth

https://seekingalpha.com/symbol/VOT/dividends/dividend-growth

VO 1.57% yield and 10.73% div growth
VOE 2.50% yield and 11.84% div growth
VOT .71% yield and 16.31% div growth

So, IMHO adding the mid-cap value index is a good choice for dividend income. Also for total return mid caps are a good place to look. Anyone remeber "Mel's mid caps" or whatever he called them on Bogleheads? I've been following bogleheads since it was on the morningstar forums, before bogleheads was popular.

On the last post I didn't put the yields. So here is that info again:

VDIGX 1.80% yield and 7.14% div growth
VIG 1.78% yield and 7.10% div growth
VYM 3.16% yield and 6.26% div growth
VTI 1.87% yield and 7.57% div growth

I personally use VYM and VYMI the foreign version which is just a year old. I also have $3k in VDIGX just to have it as an option.

VYMI 4.46% yield and 11.53% div growth (one year only, not ten like the others)

Here is one more. This is for the total world.

VT 2.31% yield and 6.30% div growth (five years only)

My taxable portfolio is 50/50 between VYM and VYMI.

My goal is $18k per year in dividends. For 2018 I should be around $16k. My div growth rate should be around 6% per year over the long term. I need $2k per month to retire in the US, but only $1,500 to expat. I'm 43. At age 60 I will also have access to a pension (18 years vested and counting) which will cover more than 100% of living expenses. I make around $73k W-2 (I work in IT, degrees in comp sci and math) and spend around $2,700 a month. If I were not working I could easily get that to $2k per month. I'm also a renter. If I purchased a house I could get my living expenses in the US to $1,500 a month easily. I could buy a very nice house for $130k cash where I currently live.