Vanguard Dividend Growth Fund: A Comprehensive Investment Guide

The Vanguard Dividend Growth Fund is an actively managed product that offers exposure to a diverse mix of dividend-focused companies. With assets under management of $45.6 billion and a dividend yield of 1.6%strong income-focused core holding for investors. The fund's portfolio consists of approximately 40 large-cap stocks, with the highest weights in healthcare and industrial stocks. It has returned 0.79% over the past year, 9.66% over three years, 10.34% over five years, and 10.24% over the past decade. The fund's expense ratio is 0.30%, and it has a Morningstar Medalist Rating. Vanguard's low-cost funds are particularly appealing for long-term investors.

The fund's focus on high-quality companies

The Vanguard Dividend Growth Fund is designed to provide income by investing in high-quality companies that can grow dividends over time. As of November 27, 2023, the fund had assets totalling almost $48.74 billion invested in 51 different holdings. The fund's portfolio primarily consists of large-cap, dividend-paying, U.S. stocks, with a small number of foreign stocks also included.

The fund's manager, Donald Kilbride, employs a strategy of smoothing returns, favouring large, defensive stocks that hold up during equity market downturns. This strategy has been successful over the long term, with the fund returning 10.34% over the past five years and 10.24% over the past decade.

The fund focuses on companies that are likely to increase dividends but whose stocks are trading at reasonable prices. This approach is not a high-yield strategy; instead, the fund manager seeks out companies with the best opportunities to steadily raise dividends over time. As a result, the fund's sector exposure favours industries with the best prospects for increasing dividend payouts.

Health care and industrials are the largest sectors represented in the fund, while utilities, where companies typically do not show robust dividend growth, make up the smallest sector holding. This focus on high-quality companies with strong dividend growth potential has earned the fund a "core" holding designation from Morningstar.

The fund's expense ratio

The Vanguard Dividend Growth Fund has an expense ratio of 0.27% to 0.30%, which is considered low compared to other funds. The average category expense ratio is 0.85% to 0.94%. This low expense ratio is one of the appealing features of the fund, as it allows investors to keep costs down without compromising on quality.

The expense ratio of a fund is an important factor to consider when investing, as it can impact the overall returns generated by the investment. The expense ratio reflects the fund's operating expenses, such as management fees, and is usually expressed as a percentage of the fund's average net assets.

Vanguard's funds are known for their low fees, with 90% of their mutual funds rated by independent research firm CFRA having expense ratios below 0.30%. This is a significant advantage for investors, as it means that a larger proportion of their investment returns will be retained.

When comparing the expense ratios of different funds, it is essential to consider the fund's investment strategy and the level of active management involved. For example, the Vanguard Dividend Growth Fund is actively managed, which typically results in higher fees than passive investment strategies. However, despite its active management, the fund's expense ratio remains competitive and below the industry average.

Additionally, it is worth noting that the Vanguard Dividend Growth Fund's expense ratio has been relatively stable over time, which contributes to its overall appeal as a long-term investment option.

The fund's performance relative to the market

The Vanguard Dividend Growth Fund has returned 0.79% over the past year, 9.66% over the past three years, 10.34% over the past five years, and 10.24% over the past decade. In recent years, the fund has slightly underperformed relative to the Standard & Poor's 500 index. However, over a longer time horizon, fund manager Donald Kilbride has steered the fund towards returns in line with or superior to large-cap indexes. The fund's strategy of smoothing returns has been successful in the long term.

The fund's focus on dividend-paying companies means that returns from dividend-payers will likely lag the overall market in any given period. The fund's largest sector holdings are in healthcare and industrials, while utilities make up the smallest sector holding. The fund's value tilt favors large, defensive stocks that tend to hold up during equity market downturns but may lag during uptrends.

The fund's turnover ratio

The turnover ratio of a portfolio is a standardised metric that reflects the percentage of a portfolio's holdings that have been replaced within a year. For example, a 50% turnover ratio indicates that half of the portfolio has been turned over, while a 100% ratio suggests that the entire portfolio has been turned over.

The Vanguard Dividend Growth Fund does not specify its turnover ratio. However, it is designed to be a long-term investment strategy, focusing on companies that can grow dividends over time. The fund's value tilt strategy favours large, defensive stocks that hold up during equity market downturns, which may suggest a lower turnover ratio.

In general, lower turnover is better for buy-and-hold investors. An example of an ultra-low turnover fund is the Voya Corporate Leaders Trust Fund Series B (ticker: LEXCX), which has made no new purchases or sales since its inception in 1935. This fund has enjoyed market-beating returns with minimal intervention from portfolio managers, demonstrating the success of a low-turnover strategy.

Vanguard offers several other funds with low turnover rates, including the Vanguard Total Stock Market Index Fund Admiral Shares (VTSAX), which has a 2.2% turnover rate, and the Vanguard 500 Index Fund Admiral Shares (VFIAX), which has a narrow focus and requires minimal intervention.

The Vanguard Dividend Growth Fund's focus on long-term dividend growth and large-cap stocks suggests a strategy that aligns with low portfolio turnover. While the exact ratio is not disclosed, the fund's strategy and performance are consistent with a lower turnover rate.

The fund's investment strategy

The Vanguard Dividend Growth Fund is designed to generate income by investing in companies that pay dividends across all industries. The fund focuses on high-quality companies that have the potential to increase their dividends over time. As of November 27, 2023, the fund had assets of almost $48.74 billion spread across 51 different holdings.

The fund's portfolio primarily consists of large-cap, dividend-paying U.S. stocks, with a small number of foreign stocks. The fund's strategy is not aimed at high-yield returns but rather focuses on companies with the best prospects for steadily increasing dividends over time. This strategy dictates the fund's sector exposure, favouring industries with strong potential for increasing dividend payouts. As a result, the largest sectors represented in the fund are healthcare and industrials, while utilities, which typically exhibit weaker dividend growth, constitute the smallest sector.

The fund's manager, Donald Kilbride, has successfully steered the fund towards returns that are in line with or superior to large-cap indexes over the long term. The fund has returned 0.79% in the past year, 9.66% over three years, 10.34% over five years, and 10.24% over the past decade.

The Vanguard Dividend Growth Fund is suitable for investors seeking exposure to dividend-growing companies and offers a strong income-focused core holding with above-average long-term returns.

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