In the topsy-turvy world of stocks, solid dividend-paying stocks are among the only near certain things. In fact, the majority of gains in the S&P 500 during the past several decades can be attributed to dividend appreciation.
Investing in a diversified basket of stocks that have a solid history of steady and increasing dividends is one of the primary keys to success. If you don't have the time or inclination to build your own dividend portfolio stock by stock, there is a solution for you.
Exchange-traded funds (ETFs) are a popular tool with investors. These instruments provide investors access to various baskets of securities, commodities and currencies via individual ticker symbols, which are traded on stock exchanges.
In the first quarter of this year, ETFs had investor inflows of more than $53 billion. In fact, four of the past five quarters saw more than $50 billion deployed in ETFs. Talk about a successful investment product: Combining the success of ETFs with the proven Retirement Savings Stocks tactic of investing in companies with steady, increasing dividends equals a powerful strategy.
One of the ETFs I'm alluding to is the Vanguard Dividend Appreciation Fund (NYSE: VIG), which comprises 147 stocks and total assets of just under $18 billion. The stocks make up the Nasdaq Achievers Select Index, which are companies with a record of increasing dividends year after year for at least a decade. (In other words, the same type of Retirement Saving Stocks often seen in Carla Pasternak's High-Yield Investing.)
The ETF is widely diversified and is most heavily weighted toward consumer staples, industrials, consumer discretionary products and energy. Its top 10 stocks comprise 40% of the total net assets. These stocks are:
My favorite trait about this ETF is that the fund's index provider actively manages the holdings to ensure that only financially strong companies are part of the index. Remember, this isn't a risky high-yield ETF, but rather an ETF made up of solid dividend payers with a substantial history of dividend increases.
VIG yields 2.11% annually with an expense ratio of 0.13%. The ETF's dividends have been increasing from a little more than 87 cents a share its first year in 2007 to $1.41 in 2012. This ETF is custom-made for investors seeking long-term wealth accumulation, not those looking for a short-term gain.
Technically, VIG has been in a steady uptrend since mid-November 2012. The stock has effectively used the upward-sloping 50-day simple moving average as support on its move from around $59 to resistance at $67. It has since fallen from its high and is consolidating in the $66 range.
Risks to Consider: The Vanguard Dividend Appreciation ETF is a powerful tool for long-term wealth accumulation, but it isn't risk-free. Be sure to diversify your portfolio, even with diversified ETFs. Always use stop-loss orders and position size properly when investing.
Action to Take --> I like the Vanguard Dividend Appreciation ETF with a stop level directly below the 50-day simple moving average.