This Vanguard ETF Has 23% of Its Portfolio Invested in Tech Stocks, but It Can Still Help You Generate Decades of Passive Income

The technology sector has significantly outperformed the S&P 500 over the last three, five, and even 10 years. Leading tech companies like Apple, Nvidia, Microsoft, and Broadcom have all seen their values rise sharply.

While many investors are drawn to these tech giants primarily for their growth potential rather than their dividend payouts, there are investment options out there that combine both attributes. One such option is the Vanguard Dividend Appreciation ETF. This fund invests a significant portion in technology stocks, yet offers a better dividend yield than the S&P 500.

The fund, which has over 330 holdings and an impressively low expense ratio of just 0.06%, provides diversification at a minimal cost. With a price-to-earnings (P/E) ratio of around 25 and a dividend yield of 1.7%, the Vanguard Dividend Appreciation ETF is more income- and value-focused compared to the Vanguard S&P 500 ETF, which has a P/E of 27 and a yield of 1.2%.

Focusing on Earnings and Dividend Growth

Unlike many low-cost ETFs that prioritize high-yield, slow-growing companies, the Dividend Appreciation ETF is packed with high-quality growth stocks. Not only are tech stocks like Apple, Microsoft, and Broadcom among its largest positions, but so are major players in other sectors like JPMorgan Chase and UnitedHealth Group.

The ETF emphasizes companies that are not only expanding their earnings but also steadily increasing their dividends. For many holdings, the dividend is more of an added bonus for long-term investors rather than the focus of the investment.

Concentration in Key Sectors

The fund's investments are concentrated in a few key sectors, with over 83% of its portfolio allocated to just five: technology, financials, healthcare, industrials, and consumer staples. While each sector comprises different types of businesses, many companies emphasize returning profits to shareholders through dividends.

Apple and Microsoft, two of the largest tech holdings in the fund, have increased their dividends for 13 and 15 consecutive years, respectively. Broadcom, another key tech player, has raised its dividend by more than 80% in the past five years.

In the financial sector, firms such as JPMorgan Chase and Bank of America consistently hike dividends, with a track record of at least a decade of increases. Meanwhile, industrial companies like Caterpillar and Lockheed Martin feature strong dividend growth while maintaining attractive valuations.

Healthcare and consumer staples comprise a combined 26% of the ETF. Renowned firms in these sectors, such as UnitedHealth, Costco, and Procter & Gamble, have robust dividend policies, showing resilience during various economic cycles.

A Simple Investment Strategy Worth Considering

The Vanguard Dividend Appreciation ETF serves as an ideal choice for investors seeking a balanced strategy involving quality companies with strong prospects for earnings and dividend growth. It offers a solid alternative to the Vanguard S&P 500 ETF, especially for those preferring investments in dividend-paying stocks. With its focus on financially sound companies rather than speculative growth stocks, investors can achieve passive income while positioning themselves for future growth.

In summary, the Vanguard Dividend Appreciation ETF is an excellent option for putting money to work in the stock market in a straightforward and efficient manner.

ETF, Investment, Technology, Dividend, Growth