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Vanguard Dividend Appreciation Index Fund ETF Should Continue To Thrive But Valuation Currently Expensive

Published Tue, 16 Jun 2020 13:45:31 -0400 on Seeking Alpha

VIG holds a portfolio of large-cap and giant-cap dividend growth stocks with at least 10 consecutive years of dividend growth.
Stocks in VIG's portfolio should perform well in a post-COVID-19 world as they have better balance sheets and competitive positions than their smaller peers.
VIG is trading at an expensive valuation compared to their historical average.
ETF Overview
More than a year ago, I have written an article to analyze Vanguard Dividend Appreciation Index Fund ETF (VIG). I feel it is time for me to evaluate the outlook of VIG again. VIG tracks the Nasdaq U.S. Dividend Achievers Select Index. The fund owns U.S. stocks that have at least 10 years of dividend growth. Most of VIG's stocks are large-cap and giant-cap stocks that have better balance sheets and competitive positions than their smaller peers and should survive and thrive in a post-COVID-19 world. However, these stocks are quite expensive right now. Hence, we think investors may want to wait on the sidelines.
Data by YCharts
Fund Analysis
A portfolio of giant and large-cap stocks
VIG's portfolio currently includes 225 dividend stocks that have been growing their dividend consistently. Most of the stocks in VIG's portfolio are giant-cap and large-cap stocks. In fact, giant-cap and large-cap stocks represent about 52.2% and 36.2% of VIG's portfolio respectively.
Source: Morningstar
I like VIG's exposure to large-cap and giant-cap stocks because these stocks generally have better balance sheets than their medium and smaller peers. This is important because the outbreak of COVID-19 will have the potential to last for several years unless an effective vaccine is developed quickly, which may take 1 to 2 years from now. Therefore, it is less risky to invest in large and giant-cap stocks. As an article written by The New York Times says,
What you saw in '08, '09 were the companies that were able to continue to invest came out the other side and actually accelerated... Read more

Stock name Last trade   P/E Earnings/Share Dividend/Share Dividend yield
JOHNSON & JOHNSON 130.43   21.6 6.03 3.80 2.93
PROCTER & GAMBLE 122.77   90.3 1.36 2.98 2.49
HOME DEPOT 233.80   23.3 10.04 5.44 2.33
UNITEDHEALTH GROUP 230.10   17.3 13.32 4.32 1.86
WAL-MART STORES 116.92   26.3 4.44 2.12 1.83
COMCAST 46.97   17.9 2.62 0.84 1.81
MICROSOFT 137.52   27.1 5.07 1.84 1.35

JOHNSON & JOHNSON - JNJ
JOHNSON & JOHNSON - JNJ  


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