Skip to Content
ETF Specialist

The Quality Dividend ETF

It's not Warren Buffett in a box, but it's close.

Mentioned: , , , , , , ,

In mid-November last year, when Warren Buffett revealed that  Berkshire Hathaway (BRK.A) (BRK.B) had taken a massive 5.4% stake in  IBM (IBM),
 Vanguard Dividend Appreciation ETF (VIG) held four of its top five holdings in common with him. This was no fluke. VIG focuses on quality dividends, demanding that companies increase them for 10 consecutive years just to make the cut. It then imposes further tests for liquidity and financial strength. The exact formula is secret but seems to weed out companies with high leverage and poor cash flow. The result is quality rather than high yield, so income-hungry investors might be surprised by a dividend yield that just matches the market. Whereas many dividend-focused funds concentrate in smaller value companies, this fund shades slightly toward growth. While we like dividends (more on that later), we think the fund's emphasis on safer yields justifies its average yield. VIG is a great choice for a core allocation.

Back to dividends. There's a lot to recommend dividend investing. For one, dividends, or the promise of them, are the soundest reason to buy equities--any other rationale relies on Ponzi thinking. Dividend investors also buy the main driver of historical stock returns, income today instead of the promise of capital appreciation tomorrow. According to the excellent Credit Suisse Global Investment Returns Sourcebook 2011, from 1900 to 2010 the U.S. stock market experienced 6.17% annualized real growth. About 4.24 percentage points of the market's return came from dividends, 1.37 percentage points from real per-share dividend growth, and a paltry 0.56 percentage points from price/dividend expansion (also known as the speculative return).

Samuel Lee does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

Transparency is how we protect the integrity of our work and keep empowering investors to achieve their goals and dreams. And we have unwavering standards for how we keep that integrity intact, from our research and data to our policies on content and your personal data.

We’d like to share more about how we work and what drives our day-to-day business.

We sell different types of products and services to both investment professionals and individual investors. These products and services are usually sold through license agreements or subscriptions. Our investment management business generates asset-based fees, which are calculated as a percentage of assets under management. We also sell both admissions and sponsorship packages for our investment conferences and advertising on our websites and newsletters.

How we use your information depends on the product and service that you use and your relationship with us. We may use it to:

  • Verify your identity, personalize the content you receive, or create and administer your account.
  • Provide specific products and services to you, such as portfolio management or data aggregation.
  • Develop and improve features of our offerings.
  • Gear advertisements and other marketing efforts towards your interests.

To learn more about how we handle and protect your data, visit our privacy center.

Maintaining independence and editorial freedom is essential to our mission of empowering investor success. We provide a platform for our authors to report on investments fairly, accurately, and from the investor’s point of view. We also respect individual opinions––they represent the unvarnished thinking of our people and exacting analysis of our research processes. Our authors can publish views that we may or may not agree with, but they show their work, distinguish facts from opinions, and make sure their analysis is clear and in no way misleading or deceptive.

To further protect the integrity of our editorial content, we keep a strict separation between our sales teams and authors to remove any pressure or influence on our analyses and research.

Read our editorial policy to learn more about our process.