Vanguard Dividend ETF's Surprise Holdings Reveal Key to Long-Term Success

The Vanguard Dividend Appreciation ETF (VIG) is one of the largest dividend-focused ETFs, managing nearly $115 billion in assets. Its top holdings might surprise investors as they are not typically associated with high yields.

Broadcom and Apple currently rank as VIG's two largest holdings, despite having relatively low yields of 0.7% and 0.4%, respectively. This is due to the fund's focus on dividend growers rather than high-yield stocks.

VIG tracks the S&P U.S. Dividend Growers Index, which screens companies based on their ability to increase dividends for at least a decade. It excludes REITs and the top 25% of companies by yield to minimize risk. The index weights companies by market capitalization, resulting in Broadcom and Apple topping the list.

A look at historical data reveals that dividend growers have significantly outperformed other dividend policies, with an average annual total return of 10.22%. This strategy has paid off for VIG investors, delivering an average annual total return of 10.2% since its inception two decades ago.