5 Vanguard Low Cost Dividend Income Fund

Vanguard launched the first index fund in the 1970s and has since grown into a leader in low cost investing. The premise of low cost investing is simple. Lower fund fees allow more of the return on investment to flow to shareholders. Vanguard lives this premise with its index funds as well as its actively managed funds. If you’re looking for a profitable mutual or exchange-traded fund (ETF) in any niche, including dividend-paying stocks, the Vanguard family of funds probably has what you need.

Here are five low-cost Vanguard dividend funds that can turn your wallet into a cash machine.

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1. High Dividend Yield ETF

If your budget is very tight, a passively managed ETF is often a good choice. You save money in two ways. First, passively managed funds have lower operating expenses because there is no dedicated lead fund manager who is paid to trade. Investment decisions are mostly automated, usually to replicate a benchmark.

And second, ETFs have low minimum investment thresholds. You only need to buy a single share – or less if your broker supports fractional ETF investing. Many mutual funds, on the other hand, have minimum investment requirements, which could run into the thousands of dollars.

The Vanguard High Dividend Yield ETF (NYSEMKT: VYM)tick both boxes. The fund’s expenses are 0.06%, or $ 0.60 a year for every $ 1,000 you invest. For a stock price of around $ 100, you get exposure to 410 different dividend paying companies such as Johnson & johnson, JPMorgan Chase, Bank of America, and Intel. VYM follows the FTSE High Dividend Yield Index to provide a dividend yield of approximately 3.1%.

2. Dividend Appreciation ETF

Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is also a passively managed ETF, but the investment approach is slightly different. While VYM focuses on high yielding stocks, VIG invests in companies with increasing dividends. The fund follows the NASDAQ US Dividend Achievers Select Index, a basket of companies that have increased their dividend for at least 10 consecutive years. A growing dividend is particularly appealing to retirees, who need their income to increase with inflation over time.

The Vanguard Dividend Appreciation ETF also has an efficient expense ratio of 0.06%. The portfolio comprises 212 stocks and the main holdings are Walmart, Johnson & Johnson, Procter & Gamble, and UnitedHealth Group. The dividend yield is 1.67%.

3. Equity Income Fund

If you prefer active management with a fund manager in charge, Vanguard Equity Income Investor Shares (NASDAQMUTFUND: VEIPX) can be a good fit. This fund has a minimum investment of $ 3,000, but it generates a return of 2.65% from the 187 stocks in its portfolio. These companies include Johnson & Johnson, JPMorgan Chase and Cisco Systems. The expenditure rate here is 0.28%.

4. Dividend Growth Fund

Vanguard Dividend Growth Fund (NASDAQMUTFUND: VDIGX) is also an actively managed mutual fund with a minimum investment of $ 3,000. This portfolio is however smaller, with only 40 positions. Despite this, the fund is well diversified across economic sectors.

VDIGX invests in companies that appear to be undervalued, which should allow stock prices to appreciate over time. Johnson & Johnson, UnitedHealth Group, Mcdonalds, and American Express are the major holdings and the dividend yield is 1.66%. The expense ratio of this fund is 0.27%.

5. Growth and Income Fund

Investor Shares of Vanguard Growth and Income Fund (NASDAQMUTFUND: VQNPX)also targets equity appreciation and dividend income. The main objective of the fund is to outperform the S&P 500 index, which it accomplished in the 12 months leading up to January 31, 2021. Over longer periods, however, VQNPX’s returns followed just below the index.

The expense ratio is the least efficient of the funds on this list at 0.32%. VQNPX also has a minimum investment amount of $ 3,000. For these disadvantages, you benefit from massive diversification – the portfolio consists of almost 1,800 stocks. Over 25% of these are tech companies, but the fund also gives you exposure to healthcare, financials, communications, and consumer discretionary companies. The 10-year average annual returns are almost 13.5% and the current dividend yield is 1.15%.

Or create your own dividend fund

You’ve probably noticed that Johnson & Johnson, JPMorgan Chase, McDonald’s, and UnitedHealth are featured in several of these fund portfolios. If you really want to keep your fees low, you can avoid all fund expenses by investing in these and other dividend stocks individually. This is a viable strategy if your broker does not charge you a trading fee and you are willing to manage the portfolio on your own.

To go this route, plan to own at least 20 stocks. This way you are not too dependent on any of them. You can also choose a broker that supports split investing to keep your buying costs as low as possible.