Why Vanguard Dividend Growth Is a Great Portfolio Anchor

Key Morningstar Metrics for Vanguard Dividend Growth

• Morningstar Medalist Rating: Gold
• Process Pillar: High
• People Pillar: Above Average
• Parent Pillar: High

Vanguard Dividend Growth: Performance Highlights

As of Jan. 1, 2024, Peter Fisher, a longtime member of subadvisor Wellington Management’s dividend-growth team, became the sole portfolio manager at Vanguard Dividend Growth VDIGX. As announced a year ago, longtime leader Donald Kilbride stepped down as a portfolio manager but remains on the team. Kilbride still contributes ideas and runs Vanguard Advice Select Dividend Growth VADGX, a more concentrated version of this portfolio available to clients in certain Vanguard advisory programs.

Fisher and Kilbride head the four-person team they started in 2012 to run this portfolio. The other two members are new; they add intellectual diversity but have less experience. Ashley Carew, a forensic accountant, joined the team and Wellington in July 2020. She brings financial precision and a distinct perspective but less investment experience. Silas Brown, with Wellington since 2014, served a growth team before joining this one at the start of 2022. It may take time for the team to fully integrate, but the move toward varied thinking is sound.

The strategy here is thoughtful and traditional. Its core philosophy holds that compounding capital over long periods is critical and growing dividends drive that success. Fisher and Kilbride believe that dividends, which companies pay in cash, are the most dependable measurement of sound operation and overall growth. They prefer to buy firms at reasonable prices, so they often add companies with temporary troubles; this helps positions compound as they hold for the long term—often more than a decade.

The fund’s resulting performance is unusual and not for everyone. The process organically creates a low-volatility portfolio that holds up dependably in downturns. On the other hand, as Fisher directly notes, it lags in rising markets. Overall, its strikingly sedate volatility drives an excellent long-term risk/reward profile.

The fund’s absolute volatility and market sensitivity are extremely low. As of March 31, 2024, among 242 active large-blend funds, its 10-year standard deviation (a volatility metric) is seventh-lowest. Similarly, its 10-year beta (a measure of sensitivity to market movements) of 0.8 is the sixth-lowest of 242 peers.

When equities fall, the fund has a consistent pattern of holding up well. Over the past six Russell 1000 Index downturns of 20% or worse, the fund has outperformed its large-blend category peers by 6.6 percentage points and the index by 7.1 points. For instance, in 2022, the fund slid just 4.9% when the average large-blend fund dropped 17.0% and the Russell 1000 Index dove 19.1%.

Since Jan. 1, 2012, when current portfolio manager Fisher, then an analyst, joined then-portfolio manager Kilbride to form the dividend growth team, the fund has gained 12.6% annually through March 31, 2024, edging out the typical category peer’s 12.3% but lagging the Russell 1000 Index’s 14.2% rise. But its Sharpe ratio, which measures risk-adjusted performance, ranks in the top 15% of the large-blend group and tops the index.

Within an overall equity portfolio, Vanguard Dividend Growth provides a sturdy, consistent foundation rather than an unpredictable shot at top returns.