Vanguard VDIGX - alternatives

[oldsalt70]

Please bear with me, I am not a sophisticated investor. Like many posters here, I need some advice.
For many years VDIGX Dividend Growth fund was my fund for my equity allocation. It had (in the early days) a fund objective of investing in companies that had a minimum of 10 years of dividends and the dividends were required to be equal to or grater than the previous year. This objective fit my risk tolerance fine... just what I wanted. And the resulting performance was fine for me.
Recently however, this fund has gone in the dumper big time. I am not much of an analyst but I know two things what might be related.
1. Several months ago the prospectus changed and the new rewrite of the objective removed all the “good stuff” and was replaced with a lot of what we used to call “weasel words” which actually said in essence “we can do whatever we want whenever we want”.
2. The first of the year the fund administrator changed.
It does not really matter much what the cause is – it looks like time for me to go.

Situations like this have two key decisions... 1. the decision to leave VDIGX is the easy part; 2. but where to go is a lot harder question.
I don't have the time or inclination to search through 30 or 40 prospectuses for a good match. You guys are much closer to the info I need so perhaps you could point me in the right direction. A fund of companies with a good history of dividends and a low expense ratio. Thanks for your help. OldSalt

Added 3/12/2025 My thanks to all who took time to offer insight to my question. I has given me a lot to review and consider. I will read (and reread) all your feedback. This forum always comes through with "good stuff". Thanks again OldSalt

[jeffyscott]

If you’re looking for an index fund as the replacement, I think VDADX would be the obvious choice at Vanguard.

I've been buying that in taxable and selling VDIGX in tax deferred. Not due to any concerns about VDIGX, but just for tax reasons as we're needing to invest excess money in taxable (and also trying to minimize fixed income/bonds in the taxable account).

It's also available as an ETF, VIG.

[Carol88888]

VIG has rising dividends.

[colodane]

I held VDIGX for a few years in my IRA account along with Vanguard Equity Income (VEIRX). Equity Income was consistently outperforming VDIGX and the two overlapped in a lot of ways. A year ago I simplified my portfolio by moving all the VDIGX into VEIRX. I've been happy with the result. VEIRX is now the "value" component of my IRA account. In my taxable account I use VTV (Vanguard Total Value) ETF for the value component. It has also performed well.

[sycamore]

As Carol88888 and jeffyscott mentioned, the Vanguard Dividend Appreciation Index Fund is a good choice.
Tickers: VDADX and VIG.

From the fund's "product summary":

This low-cost index fund seeks to track a benchmark that provides exposure to U.S. companies that have a history of increasing dividends. The fund focuses on high-quality companies that have both the ability and the commitment to grow their dividends over time. One of the fund’s risks is the possibility that returns from dividend-paying stocks will trail returns from the overall stock market during any given period. Another risk is the volatility that comes with the fund’s full exposure to the stock market. An investor with a well-balanced, long-term portfolio who seeks some income and exposure to dividend-focused companies may wish to consider this fund.

I underlined what I think the key parts are. Many times I have thought, "Ugh, VIG is trailing again. I should've just bought Total Stock Market."
But it's done well enough and I'm happy that it's had slightly less volatility than Total Stock Market.

A side benefit of being an index fund and having an ETF share class is that unlike VDIGX it doesn't distribute capital gains does. No unwanted cap gains or cap gains taxes.

Its Qualified Dividend Income rate has been 100% for as long as I can remember (ditto for VDIGX).

[Beensabu]

Recently however, this fund has gone in the dumper big time.

Just compared to VTSAX. YTD returns are actually positive - go figure.

1. Several months ago the prospectus changed and the new rewrite of the objective removed all the “good stuff” and was replaced with ... in essence “we can do whatever we want whenever we want”.

I didn't know that... I just looked and that is pretty much what it says now.

2. The first of the year the fund administrator changed.

No, it didn't. The advisor is still Wellington Management Company LLP - same as it has been since back in 1992 when VDIGX was a utilities fund (for the first 10 years of its existence).

Looks like the main thing the new manager has done is add Apple (and as the largest holding). That stock doesn't meet the old "good stuff" constraints, because it's had long periods of no dividends and a history of cutting dividends - their last dividend "growth" stretch has only been since 2021, and the current dividend is piddly compared to price.

For what it's worth, Apple is the second largest holding (at about the same % weighting) in VDADX/VIG - that fund also has a heavier tech and financials weighting (and lighter consumer discretionary and industrials weighting) than VDIGX.

[jeffyscott]

Not sure what difference you see in the prospectus?

The 2023 version is available here: https://www.sec.gov/Archives/edgar/data ... 5620d1.htm

Objective and principle investment strategies there are unchanged in the current, May 2024, version:


Investment Objective
The Fund seeks to provide, primarily, a growing stream of income over time and, secondarily, long-term capital appreciation and current income.

Principal Investment Strategies
The Fund invests primarily in stocks that tend to offer current dividends. The Fund focuses on high-quality companies that have prospects for long-term total returns as a result of their ability to grow earnings and their willingness to increase dividends over time. These stocks typically—but not always—will be large-cap, will be undervalued relative to the market, and will show potential for increasing dividends. The Fund seeks to be diversified across industry sectors.


The performance under the new manager doesn't seem all that different from the former manager's new fund, Vanguard Advice Select Dividend Growth (VADGX). VDIGX has been somewhat worse, but both have recently underperformed when compared to VDADX.

[Beensabu]

Not sure what difference you see in the prospectus?

See the bottom of page 6 (15) through the top of page 9 (18) here:

https://personal1.vanguard.com/pub/Pdf/p057.pdf

[Beensabu]

OP - I think the change from what you remember (companies that have increased their dividend for 10 or more years) happened when VDIGX switched from using the US Dividend Achievers Select Index in 2021.

Here's an ETF that still uses that index, but the expense ratio is quite high at 0.52%:

PFM - https://www.invesco.com/us/financial-pr ... ticker=PFM

The Invesco Dividend Achievers™ ETF (Fund) seeks to replicate, before fees and expenses, the NASDAQ US Broad Dividend Achievers™ Index (Index), which is designed to identify a diversified group of dividend-paying companies. The Fund will normally invest at least 90% of its total assets in dividend paying common stocks that comprise Index. These companies have increased their annual dividend for 10 or more consecutive fiscal years.

So if that's the strategy you want, then look for funds that follow that index.

Edit: PFM might be the only one... https://etfdb.com/index/nasdaq-us-broad ... ers-index/

[jeffyscott]

OP - I think the change from what you remember (companies that have increased their dividend for 10 or more years) happened when VDIGX switched from using the US Dividend Achievers Select Index in 2021.

Here's an ETF that still uses that index, but the expense ratio is quite high at 0.52%:

PFM - https://www.invesco.com/us/financial-pr ... ticker=PFM

VDIGX changed it's benchmark index to the S&P US Dividend Growers Index, which targets U.S. stocks that have increased their dividend payments for at least 10 consecutive years. So the criterion of 10 years of increases did not change, of course it's not an index fund so it's never been obligated to consider only stocks that meet that standard.

Why pay 0.52% for that when you can get a fund that uses that 10 year criterion for 0.08% or 0.05%? VDADX/VIG tracks the S&P US Dividend Growers Index, so also requires 10 years of increasing dividends. Even the managed fund, VDIGX (at 0.29%) is significantly cheaper than that ETF.

Those two indexes track each other pretty closely, based this chart:


There's also SCHD for 0.06% which uses the Dow Jones US Dividend 100 Index of 100 stocks that have paid dividends for at least 10 consecutive years (that doesn't appear to require increasing dividends, though).

[Beensabu]

VDADX/VIG tracks the S&P US Dividend Growers Index, so also requires 10 years of increasing dividends. Even the managed fund, VDIGX (at 0.29%) is significantly cheaper than that ETF.

Well, yeah, that ETF is expensive... I wouldn't buy it. It specifically states the 10-year thing in the summary/objective, though, if that's what OP is insisting on (which it kind of seems like they are).

S&P US Dividend Growers Index also excludes the 25% highest yielding eligible companies.

VDIGX currently benchmarks to that same index (S&P US Dividend Growers Index). The product summary is nearly identical to VDADX (other than the first sentence about VDADX being a low-cost index fund).

I guess Apple does actually have 10 years of increasing dividends (since 2013). It did a 7:1 split in 2014 and a 4:1 split in 2020, but I got confused just looking at the dollar amount of the dividend and not accounting for that... Slow pace of increase, though. You get $1/sh/yr when the current price is $223/sh - more for the capital appreciation than for the dividend income.

One thing for OP to think about is that VDADX/VIG added Apple a couple years before VDIGX did. As soon as it was included in the index vs. waiting on the manager's decision. That does explain the extent of outperformance coming out of the last downturn at least a bit. It's an index fund, so it's going to include growth companies as soon as they meet the criteria to be included in the index (and while they're still growth).*

*This is actually really interesting and a huge feature of VDADX/VIG, I think. Besides the obvious low ER.

[Clarky]

VDADX/VIG tracks the S&P US Dividend Growers Index, so also requires 10 years of increasing dividends. Even the managed fund, VDIGX (at 0.29%) is significantly cheaper than that ETF.

Well, yeah, that ETF is expensive... I wouldn't buy it. It specifically states the 10-year thing in the summary/objective, though, if that's what OP is insisting on (which it kind of seems like they are).

S&P US Dividend Growers Index also excludes the 25% highest yielding eligible companies.

VDIGX currently benchmarks to that same index (S&P US Dividend Growers Index). The product summary is nearly identical to VDADX (other than the first sentence about VDADX being a low-cost index fund).

I guess Apple does actually have 10 years of increasing dividends (since 2013). It did a 7:1 split in 2014 and a 4:1 split in 2020, but I got confused just looking at the dollar amount of the dividend and not accounting for that... Slow pace of increase, though. You get $1/sh/yr when the current price is $223/sh - more for the capital appreciation than for the dividend income.

One thing for OP to think about is that VDADX/VIG added Apple a couple years before VDIGX did. As soon as it was included in the index vs. waiting on the manager's decision. That does explain the extent of outperformance coming out of the last downturn at least a bit. It's an index fund, so it's going to include growth companies as soon as they meet the criteria to be included in the index (and while they're still growth).*

*This is actually really interesting and a huge feature of VDADX/VIG, I think. Besides the obvious low ER.

VDADX/VIG has a large AUM, but it still seems under-appreciated to me based on comments I’ve read in other posts. Lately, for instance, it’s proven to me its value as downside protection… It was actually up one day (or more) when VTI was down bigly (although it did the opposite at least once as well, when tariff tweets restarted, probably I would think because of the industrial sector overweight).

Anyway, I’m a fan. I’ve looked at VIDGX, but it has concentration risk and over time hasn’t proven its value vs. VDADX/VIG on an ER basis, in my opinion.

[jeffyscott]

S&P US Dividend Growers Index also excludes the 25% highest yielding eligible companies.

Yes, both it and the Dividend achievers select exclude the top 25% by dividend yield. So it seens that there's very little difference, if any.

VDIGX currently benchmarks to that same index (S&P US Dividend Growers Index). The product summary is nearly identical to VDADX (other than the first sentence about VDADX being a low-cost index fund).

The index fund fully replicates the index, by owning all the stocks in it at their index weighting.

I think VDIGX's chosen benchmark just means that they intend the fund's investment style to be sort of similar. They didn't ever say that they'd restrict the fund to a subset of the index constituents or something like that, did they?

[Beensabu]

Lately, for instance, it’s proven to me its value as downside protection…

Yeah, dividend growth/appreciation is good for that. And that makes a difference in withdrawal.

[Beensabu]

The index fund fully replicates the index, by owning all the stocks in it at their index weighting.

I'm coming around to it. When I switched 10% of my port to VDIGX a couple years ago, everyone was all "you know there's an index fund, right?" and I just blew it off because 10% and little dollars. Also, it doesn't have any energy and utilities, which was important to me to avoid duplication.

I do think the index fund has slightly less downside protection precisely because it includes growth companies while they're still growth (so is a little closer to total market), but that could be a good thing for accumulation. When I do get to my pre-determined "allowed to reassess risk/cost and reallocate" point in 6 years, it's a potential switch to make.

If OP doesn't like the “we can do whatever we want whenever we want” thing, they should probably stay away from actively managed funds (that do whatever they want whenever they want).

[jeffyscott]

I do think the index fund has slightly less downside protection...

That was one reason I went with VDIGX. Maybe it'll pay off in the coming months?

As noted before, I am shifting some to the index fund because of a need to do some buying in taxable. About 8% in VDIGX + VDADX with only about 1/7 of that total in the index fund at this point. That decision certainly seems to have paid off, since VDIGX distribution was about 10% of it's value in December.

[Beensabu]

That decision certainly seems to have paid off, since VDIGX distribution was about 10% of it's value in December.

Yeah, they had to sell stuff to buy Apple last year, after all...

It's no good in taxable. Most active funds aren't, for that reason.

Although turnover for VDIGX is still shocking low for an active fund. Edit: It was actually slightly higher for VDADX with the same fiscal year-end... Wasn't expecting that.

[Bama12]

That decision certainly seems to have paid off, since VDIGX distribution was about 10% of it's value in December.

Yeah, they had to sell stuff to buy Apple last year, after all...

It's no good in taxable. Most active funds aren't, for that reason.

Although turnover for VDIGX is still shocking low for an active fund.

I lost interest in VIG, when Apple was added.

[Beensabu]

I lost interest in VIG, when Apple was added.

That's funny. When I added VDIGX, the only thing I bemoaned was the lack of Apple (because they're one of the only ones doing buybacks right). And it was quickly pointed out to me that VIG had it.

[Bama12]

I lost interest in VIG, when Apple was added.

That's funny. When I added VDIGX, the only thing I bemoaned was the lack of Apple (because they're one of the only ones doing buybacks right). And it was quickly pointed out to me that VIG had it.

I liked VIG, before apple because the % in VTI was high.
VIG was a good way to move from so much tech.

[Beensabu]

That's funny. When I added VDIGX, the only thing I bemoaned was the lack of Apple (because they're one of the only ones doing buybacks right). And it was quickly pointed out to me that VIG had it.

I liked VIG, before apple because the % in VTI was high.
VIG was a good way to move from so much tech.

That makes sense. When I added VDIGX, I swapped it in for VTSAX, so I was left with no Apple. VIG does have a high tech weighting, including all that Broadcom as holding #1. Which is why I'm sort of thinking of it as VTI-lite now.

[Clarky]

I liked VIG, before apple because the % in VTI was high.
VIG was a good way to move from so much tech.

That makes sense. When I added VDIGX, I swapped it in for VTSAX, so I was left with no Apple. VIG does have a high tech weighting, including all that Broadcom as holding #1. Which is why I'm sort of thinking of it as VTI-lite now.

I’m all for high quality companies that return profits to shareholders on a consistent and growing basis being added to the index. Apple, Broadcom, Microsoft are not speculative investments. Also, I haven’t checked lately, and I’m not a math wizard, but if one is swapping out of VTI to VIG, or foregoing a VTI investment for VIG, these companies have lower weightings in VIG (again, last I checked) thus diluting one’s exposure to these companies.

Feel free to attack my logic.

[Beensabu]

VIG does have a high tech weighting, including all that Broadcom as holding #1. Which is why I'm sort of thinking of it as VTI-lite now.

I’m all for high quality companies that return profits to shareholders on a consistent and growing basis being added to the index. Apple, Broadcom, Microsoft are not speculative investments. Also, I haven’t checked lately, and I’m not a math wizard, but if one is swapping out of VTI to VIG, or foregoing a VTI investment for VIG, these companies have lower weightings in VIG (again, last I checked) thus diluting one’s exposure to these companies.

Feel free to attack my logic.

Nothing to attack. Your logic is logical.

I've realized I'm not particularly comfortable with how US TSM works - that what is a feature to most (the tendency for overvalued growth stocks to take over at times) is a bug in my mind (that's just me personally). "VTI-lite" may be the answer to that once I don't need quite so much drawdown mitigation during accumulation.

[Clarky]

I’m all for high quality companies that return profits to shareholders on a consistent and growing basis being added to the index. Apple, Broadcom, Microsoft are not speculative investments. Also, I haven’t checked lately, and I’m not a math wizard, but if one is swapping out of VTI to VIG, or foregoing a VTI investment for VIG, these companies have lower weightings in VIG (again, last I checked) thus diluting one’s exposure to these companies.

Feel free to attack my logic.

Nothing to attack. Your logic is logical.

I've realized I'm not particularly comfortable with how US TSM works - that what is a feature to most (the tendency for overvalued growth stocks to take over at times) is a bug in my mind (that's just me personally). "VTI-lite" may be the answer to that once I don't need quite so much drawdown mitigation during accumulation.

I agree. However, the alternative to VTI for me, historically, was to churn my investments looking for that “perfect” combination. I finally decided to let the market do the heavy lifting (VTI/VXUS). It’s been a profitable decision. I did keep VIG for that downside mitigation (which is not magical other than it provides for some psychological support when the market is gyrating, like it has been lately). I think it generally performs as advertised.