The best Vanguard dividend funds you can find today offer a combination of yield as well as the stability and cost-effective structure that investors have come to expect from this leading asset manager.
You’d think that all dividend mutual funds would prioritize the long-term dividend income of their holdings. But they don’t: Some dividend funds pay above-average dividends today but are at risk of serious volatility or even cutbacks of their payouts in the future. That means you have to do more than just pick dividend-paying mutual funds based on the percentage yield they pay today.
I’ve taken some of the guesswork out of your to-do list, however, by thinning the herd down to a select group of the best Vanguard dividend funds. Among factors I’ve looked at: each fund’s dividend growth rate, expense ratio, and—because it still matters—current headline yield.
The result is a list of dividend mutual funds that should serve you well regardless of any stock market ups and downs.
Disclaimer: This article does not constitute individualized investment advice. These funds appear for your consideration and not as investment recommendations. Act at your own discretion.
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Why Invest in Dividend Stocks Via Mutual Funds?
The best dividend mutual funds offer investors a way to invest in a group of high-quality stocks that pay above-average dividends with just one purchase.
As a group, dividend stocks are pretty common, but they’re not created equally. Sure, you can find some stocks with a good, sustainable yield and growing payouts. But some only pay nominal dividends that are just a penny or two per share, with no prospect for dividend growth anytime soon. Others might offer generous but unsustainable dividend payouts that might be eliminated altogether in the future.
That’s why mutual funds are a good alternative to individual dividend stocks. These vehicles spread your money around, rather than force you to rely on one company’s specific strengths and weaknesses. And finding the best stocks capable of consistently paying dividends and enjoying significant future dividend growth can be a daunting task, even for seasoned investors. So instead, why not try to gain exposure to dividend-paying stocks via a single, diversified holding that’s tasked with finding great companies for you?
That’s what you’ll get from many Vanguard dividend funds.
Why Vanguard?
Vanguard Group is a leader in index funds, which are simply funds that track a rules-based index, like the S&P 500.
In 1976, Vanguard founder Jack Bogle launched the first Vanguard index fund for U.S. retail investors—the Vanguard First Index Investment Trust, which is now the Vanguard 500 Index Fund Admiral Shares (VFIAX)—and in the four-and-a-half decades that have followed, Vanguard Funds have grown to become the dominant force in index investing.
Today, this financial behemoth has $9 trillion in assets under management with an average expense ratio of just 0.08%, or a mere 80¢ for every $1,000 invested. There are currently ~425 Vanguard funds, including mutual funds and ETFs. And Vanguard index funds cover every conceivable pocket of the investable universe, including individual sector funds and emerging markets.
Vanguard grew into the powerhouse mutual fund company it is today by taking care of its clients and genuinely looking after their interests. Vanguard funds really started (and continue to accelerate) the trend of fee compression. We all collectively pay less in fees and expenses and enjoy better returns because of the index revolution started and led by Vanguard’s founder Jack Bogle.
Today, I’m going to take a look at the very best Vanguard dividend funds. But you can also find a host of other index funds and investing options for strategies of all shapes and sizes. Whatever your tactics, however, you can have confidence that Vanguard will offer significant scale and rock-bottom fees via its investment options.
Our Favorite Vanguard Dividend Mutual Funds
When deciding on the best Vanguard dividend mutual funds, I tried to offer a variety of strategies and flavors without lowering our standards. All of these picks are established dividend investments with low cost structures, so you can invest with confidence in one or more of these options if they align with your personal investing needs.
Please note that many of the best Vanguard mutual funds also offer an exchange-traded version. Vanguard ETFs also provide instant diversification for extremely low fees, so where appropriate, I’ve mentioned exchange-traded alternatives for the best Vanguard dividend funds to provide flexibility for those who might need it.
Best Vanguard Dividend Fund #1: Vanguard Dividend Appreciation Index Fund Admiral Shares
- Type: Domestic large-cap stock
- Assets under management: $15.7 billion
- Expense ratio: 0.08%, or $8 per year for every $10,000 invested
- Dividend yield: 1.7%
- Minimum initial investment: $3,000
On the surface, you might look at the Vanguard Dividend Appreciation Index Fund Admiral Shares (VDADX) and come away unimpressed. After all, the yield is only a hair larger than that of the vanilla S&P 500 Index. And while the portfolio is a little more selective, with only around 315 total holdings at present, this dividend fund holds a lot of the same names you’ll find in the typical large-cap mutual fund, including Apple (AAPL) and Microsoft (MSFT).
VDADX, which tracks the S&P U.S. Dividend Growers Index, focuses on high-quality companies that have ample headroom in their profits to raise dividends as well as a track record of recent increases. Hence the “dividend appreciation” in its name. In other words: The current yield might be modest, but the future yield on cost (the yield on the price you originally paid) could be significantly higher after you buy in.
VDADX has an exchange-traded version, the Vanguard Dividend Appreciation ETF (VIG, 0.06% expense ratio), that ranks as one of the 20 largest U.S. ETFs of any flavor as measured by assets. That reinforces the popularity of this strategy, even if the current yield doesn’t blow your hair back.
Learn more about VDADX at the Vanguard provider site.
Related: 8 Best Stock Portfolio Tracking Apps [Stock Portfolio Trackers]
Best Vanguard Dividend Fund #2: Vanguard Dividend Growth Fund
- Type: Domestic large-cap stock
- Assets under management: $52.6 billion
- Expense ratio: 0.30%, or $30 per year for every $10,000 invested
- Dividend yield: 1.6%
- Minimum initial investment: $3,000
Another fund that needs a bit of explaining to make sense is the Vanguard Dividend Growth Fund (VDIGX).
For one, VDIGX isn’t an index fund—it’s actively managed by Wellington Management Company’s Donald J. Kilbride and Peter C. Fisher. So rather than having to strictly follow rules like VDADX does with its benchmark index, Kilbride and Fisher have full discretion to build a portfolio of dividend growth stocks as they see fit.
This top dividend fund offers a yield that is just a tad lower than the prior fund. And even more confusing is the fact that it has a very short list of components, with just under 50 stocks in its portfolio at present.
Once again, however, it’s all about future payouts. Take one of the fund’s top components, medical device firm Stryker (SYK). The company paid 80 cents in its quarterly distribution in March, which is up significantly from the 63 cents it was paying in early 2022 and more than double the 34.5 cents paid in 2015. The headline yield might be a paltry 0.8% right now, but that growth is what matters most.
VDIGX is laser-focused on companies with a recent track record of significant dividend growth, which might be attractive to some investors. And, in fact, many of its holdings—including McDonald’s (MCD) and Colgate-Palmolive (CL)—are Dividend Aristocrats with 25 or more years of uninterrupted dividend growth.
Learn more about VDIGX at the Vanguard provider site.
Related: The 7 Best Dividend ETFs [Get Income + Diversify]
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Best Vanguard Dividend Fund #3: Vanguard High Dividend Yield Index Fund Admiral Shares
- Type: Domestic large-cap stock
- Assets under management: $13.7 billion
- Expense ratio: 0.08%, or $8 per year for every $10,000 invested
- Dividend yield: 2.7%
- Minimum initial investment: $3,000
The Vanguard High Dividend Yield Index Fund Admiral Shares (VHYAX) is, as the name implies, more concerned with raising that dividend yield higher than the prior funds. It does so through a list of nearly 450 total components that are picked based on their current income potential—not hopes of bigger future paydays (though some holdings do grow their dividends, too).
That means this high-dividend-yield mutual fund excludes companies like Apple that pay dividends but offer only modest yield, and instead has a bias toward companies such as JPMorgan Chase (JPM) that pay significantly more than the average large-cap stock.
In fact, nearly 20% of all VHYAX assets are in the financial sector, while just 8% is in technology. This is a much different mix than you’ll find in typical large-cap stock funds, which tend to be heavy on Big Tech mainstays. So be aware of these and other sector weightings as you consider how to layer this Vanguard fund into your big-picture strategy.
This is also offered in ETF form: The Vanguard High Dividend Yield ETF (VYM) costs 0.06% annually.
Learn more about VHYAX at the Vanguard provider site.
Related: 15 Best High-Yield Investments [Safe Options Right Now]
Best Vanguard Dividend Fund #4: Vanguard Equity-Income Fund Investor Shares
- Type: Domestic large-cap stock
- Assets under management: $5.2 billion
- Expense ratio: 0.27%, or $27 per year for every $10,000 invested
- Dividend yield: 2.6%
- Minimum initial investment: $3,000
Giving Vanguard dividend fund investors yet another option, Vanguard Equity Income Fund Investor Shares (VEIPX) is an actively managed option with about 180 total holdings that represent some of the biggest names on Wall Street. Leading the portfolio at present are mega-bank JPMorgan Chase, healthcare icon Johnson & Johnson (JNJ), and Big Pharma mainstay Merck (MRK).
You do face certain risks when you put your money behind an actively managed fund instead of an index fund, particularly given the long history of active managers underperforming their passive benchmarks. However, some investors prefer the peace of mind that comes with knowing someone is hand-picking components—particularly in the area of dividend stocks, where there’s a delicate balance between current yield and future payout potential.
You should also note that, if you have a lot of money to invest, you can get this same fund at a lower cost. Specifically, the Admiral Shares charge just 0.19% in annual expenses, though you need $50,000 to invest, versus just $3,000 for the VEIPX Investor Shares. Most smaller-money investors might prefer to shoulder the high fees rather than put all their eggs in a cheaper basket.
Learn more about VEIPX at the Vanguard provider site.
Related: 10 Best Stock Picking Services, Subscriptions, Advisors & Sites
Best Vanguard Dividend Fund #5: Vanguard Energy Fund Investor Shares
- Type: Sector (Energy)
- Assets under management: $1.8 billion
- Expense ratio: 0.46%, or $46 per year for every $10,000 invested
- Dividend yield: 3.4%
- Minimum initial investment: $3,000
One of the corners of Wall Street that commonly carries above-average dividends is the energy sector. And believe it or not, Vanguard offers a traditional, actively managed mutual fund that is dedicated wholly to energy stocks—and delivers a pretty nice yield as a result.
Built with a focused list of roughly 50 of the largest energy stocks in the world, Vanguard Energy Fund Investor Shares’ (VGENX) portfolio is full of familiar names like domestic production firm ConocoPhillips (COP) as well as Big Oil companies from overseas like Shell (SHEL) and BP (BP).
This strategy comes with a bit more risk—the prior funds are diversified across many sectors, while VGENX is fully concentrated in just one. However, it’s a way to participate in higher oil and gas prices, and there are worse ways to get a steady stream of income than to focus on the biggest stocks in international energy markets.
VGENX is another Vanguard dividend fund that has a lower-cost Admiral offering (0.16% in annual expenses), but again, it requires a $50,000 investment minimum.
Learn more about VGENX at the Vanguard provider site.
Related: 15 Best Stock Research & Analysis Apps, Tools and Sites
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Frequently Asked Questions (FAQs)
How are the best Vanguard dividend funds different from “income” funds?
Many investors have seen funds branded as “income” funds, and it’s easy to get confused. That’s because dividends from stocks are just one way of producing income from your portfolio.
The other major way is to own bonds, which are pooled debt instruments where the company is the borrower who pays interest on that debt to the investor on a regular basis. Beyond that there are also other instruments including preferred stock, or even real estate and private equity investments.
For the purpose of this list, we focused purely on dividends – which are profit-sharing distributions to shareholders of common stock. Those other asset classes all come with their own unique risks, and shouldn’t be seen as interchangeable with the potential risks and rewards delivered by dividend stocks or the mutual funds that hold them.
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