Retirement Dividend Portfolio: VIG And 3 Other High Yields

seekingalpha06-27

Vanguard Dividend Appreciation Index Fund ETF Shares has an impressive track record as a wealth compounded and dividend growth machine.However, it also has some major shortcomings.We discuss these ...

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This article will discuss VIG's strengths and weaknesses and suggest additions to create a better-diversified and more powerful retirement dividend income portfolio. Strengths of VIG ETF VIG has proven to be a good long-term compounder, generating total returns nearly identical to those of the Schwab U.S. Dividend Equity ETF (SCHD) over the long term. Meanwhile, it has significantly outpaced the Vanguard High Dividend Yield Index Fund ETF Shares (VYM) in total returns. One key factor in VIG's strong performance is its very low expense ratio of 0.06%, allowing investors to keep most of the portfolio's profits. Data by YCharts VIG ETF Dividend Yield and Growth  While VIG's dividend yield is relatively modest at 1.75% (roughly half of what is offered by SCHD), it is still higher than the S&P 500's current yield of 1.26%. Moreover, the real strength of VIG lies in its dividend growth rate. Over the past three years, VIG has achieved a dividend compound annual growth rate of 11.39%, outperforming SCHD's 8.56% and SPY's 7.08%. This makes VIG a powerful dividend growth vehicle despite its modest current yield. VIG ETF Portfolio Composition VIG's portfolio composition explains its lower yield but higher growth rate. Approximately 23% of its portfolio is allocated to technology stocks, including Apple, Microsoft, and Broadcom, three of the largest and most dynamic dividend-paying AI tech stocks in the market today. VIG also has significant exposure to the financial, healthcare, industrial, and consumer defensive sectors. However, it has much lower allocations to consumer cyclical, basic materials, energy, utilities, and communications stocks. Enhancing VIG ETF While VIG excels in dividend growth and provides considerable exposure to leading large caps in prominent sectors, it could benefit from a higher current dividend yield and diversification into higher-yielding sectors such as energy, utilities, communications, and real estate. To boost the yield and diversify into the energy sector, investors could supplement VIG with The Energy Select Sector SPDR® Fund ETF (XLE), which has a 3.2% trailing 12-month yield and a low expense ratio of 0.09%. XLE provides exposure to leading large caps in both energy production and midstream infrastructure, Alerian MLP ETF (AMLP). Improving utilities and communications exposure can be achieved by investing in an infrastructure closed-end fund like the Cohen & Steers Infrastructure Fund (UTF). UTF offers an 8.32% dividend yield and includes significant holdings in utilities (XLU), midstream powerhouses like Enbridge Inc. (ENB), and a communications REIT like American Tower Corporation (AMT). For real estate exposure, investors might consider the Vanguard Real Estate Index Fund ETF Shares (VNQ) or, alternatively, choose a conservatively run blue-chip REIT like W. P. Carey Inc. (WPC) or Realty Income Corporation (O). These options provide substantial real estate exposure and enhance the portfolio's yield without over-leveraging. Investor Takeaway Vanguard Dividend Appreciation Index Fund ETF Shares is a broadly diversified ETF that seeks to track the performance of the S&P U.S. Dividend Growers Index by implementing a passively managed, full-replication approach that enables it to operate with a low expense ratio. Moreover, it focuses on large-cap stocks that keep its long-term risk profile low and also emphasizes owning stocks with a track record of growing their dividends every year, which gives them a strong dividend growth profile.  By combining the dynamic growth and solid long-term total return potential of VIG with three other high-yield investments-XLE, UTF, and a blue-chip REIT like WPC or O-investors can build a portfolio that offers a satisfactory dividend yield, diversified sector exposure, robust inflation-beating dividend growth, and solid long-term total return potential. This combination should meet the needs of retirees, although it is essential to consult a financial advisor or planner to tailor a portfolio to individual needs. This hypothetical portfolio merely aims to provide ideas for building a portfolio around a core holding in VIG by highlighting VIG's pros and cons.","kind":null,"is_publish_news":true,"is_publish_highlight":false,"is_publish_live":null,"is_publish_wemedia":null,"editions":null,"column":"","sentiment":"","news_tag":"","news_rank":0,"symbols":[],"gpt_button":1},"commentList":[],"isCommentEnd":true,"newsSizeData":{"likeSize":0,"commentSize":0,"repostSize":0,"favoriteSize":0,"likeStatus":false,"favoriteStatus":false},"APP":{"userAgent":"Mozilla/5.0 AppleWebKit/537.36 (KHTML, like Gecko; compatible; ClaudeBot/1.0; +claudebot@anthropic.com)","isDev":false,"isTTM":true,"deviceId":"web-server-community-laohu8-v3","version":"4.24.2","shortVersion":"4.24.2","platform":"web","vendor":"web","appName":"ttm","isIOS":false,"isAndroid":false,"isTiger":false,"isTHS":false,"isWeiXin":false,"isWeiXinMini":false,"isWeiBo":false,"isQQ":false,"isBaiduSwan":false,"isBaiduBox":false,"isDingTalk":false,"isToutiao":false,"isOnePlus":false,"isHuaWei":false,"isXiaomi":false,"isXiaomiWebView":false,"isOppo":false,"isVivo":false,"isSamsung":false,"isMobile":false},"href":"/m/news/2446731901"}