Are There Dividend-Only Index Funds for the U.S. Market?

Are you looking for a dividend-only index fund that holds all the dividend-paying stocks in the U.S. market, similar to the Vanguard Total Stock Market Index Fund? The answer is somewhat nuanced, as there are different strategies and approaches in the market.

Active Fund Strategies

Among actively managed funds, you can find numerous dividend-oriented stock funds that focus on dividend quality and growth. These funds look for companies with a long history of steady earnings and increasing dividend payouts. Actively managed funds often outperform the market over the long term, but they come with higher fees.

Passive Fund Strategies

In the passive fund world, there are funds that use objective criteria to include companies that have increased their dividends over a specific period. For example, Vanguard's VIG (Vanguard Dividend Appreciation Index Fund) requires a company to have increased its dividends over a five-year period. These funds are typically lower-cost compared to actively managed funds and aim to replicate the performance of a specific market index, but are not limited to only dividend-paying stocks.

Specialized Dividend-Focused Funds

Some funds take a more specialized approach. DTD (Find Your FD) is an example of a fund that buys stocks based on the total number of dollars in dividends paid out, ranking them by those amounts. Another fund, DV_DF (Discover Dividend Fund), combines the criteria used by VIG and DTD, aiming to create a portfolio with a significant flow of dividend dollars and quality.

Popular Vanguard Funds Dealing in Dividend Payers

Mr. Shaw has listed three Vanguard funds that deal with dividend-paying stocks:

Vanguard Dividend Appreciation Index Fund Investor Shares (VDAIX) - Average annual return of 6.27%, started in 2006, with an expense ratio of 0.20. Vanguard Dividend Growth Fund (VDIGX) - A popular fund that launched in 1992, with an average annual return of 7.94 and an expense ratio of 0.32. Columbia Dividend Income Fund (GSFTX) - Launched in 1998, with an average annual return of 7, and an expense ratio of 0.77, which is higher compared to the others in this category.

These funds provide different strategies for investors seeking consistent dividends and potential growth.

Conclusion

While there isn't a single dividend-only index fund that holds all the dividend-paying stocks in the U.S. market similar to the Vanguard Total Stock Market Index Fund, you can find several funds that specialize in dividend-paying stocks, each with its own unique approach. Whether you prefer active or passive management, there are options to suit your investment goals.