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The 3 Best Vanguard Funds for Dividend Lovers

These are the best Vanguard funds for those looking for a combination of low costs and steady income

Even With Rising Bond Yields, Dividend Stocks Reign Supreme

Source: Simon Cunningham via Flickr

Some of the best Vanguard funds kick off steady income, which makes them top choices for dividend lovers.

The 3 Best Vanguard Funds for Dividend Lovers

In a low-rate environment, smart investors looking for dividends will do their best to find mutual funds with low expenses because every bit of return that can be squeezed out of a fund is just as important as the yield.

Also, when searching for the best funds that pay dividends, don’t just look for the highest yields. It’s smart to have a balance of risk, return and yield. As I said in my article, 7 Best Dividend Mutual Funds to Count On: “Dividend funds with the highest yields, if they come along with high expense ratios and with excessive market risk, can ironically reduce your investment income by putting a big dent in your principal” when stock prices take a dive.

So, with the idea of keeping costs low and getting decent yields without exposing your income portfolio to excessive market risk, here are the best Vanguard funds for dividend lovers.

Best Vanguard Funds for Dividend Lovers: Vanguard High Dividend Yield Index (VHDYX)

Best Vanguard Funds for Dividend Lovers: Vanguard High Dividend Yield Index (VHDYX)SEC Yield: 3.10%
Expenses: 0.16%, or $16 annually per $10,000 invested
Minimum Initial Investment: $3,000

For investors that love passive management and low expenses just as much as their dividends, there’s arguably not a better mutual fund to buy than Vanguard High Dividend Yield Index (MUTF:VHDYX).

VHDYX tracks the FTSE High Dividend Yield Index, which consists of U.S. companies, such as Microsoft Corporation (NASDAQ:MSFT), Exxon Mobil Corporation (NYSE:XOM), and Johnson & Johnson (NYSE:JNJ), that consistently pay above-average dividends.

On top of the dividends, VHDYX shareholders get potential for market-beating returns, as evidenced by the one-, three- and five-year performance ranks that place the fund ahead of at least 85% of funds that invest in large value stocks.

And when the market turns negative, large value funds like VHDYX tend to see lower price declines than the major market indices.

Best Vanguard Funds for Dividend Lovers: Vanguard Real Estate Index (VGSIX)

Best Vanguard Funds for Dividend Lovers: Vanguard Real Estate Index (VGSIX)SEC Yield: 3.41%*
Expenses: 0.26%
Minimum Initial Investment: $3,000

The real estate sector is known for high dividend payouts and Vanguard Real Estate Index (MUTF:VGSIX) is one of the best funds to buy in this category.

Although the near-term potential for rising interest rates can create headwinds for real estate investment trusts, a low-interest-rate environment keeps borrowing costs low for homebuyers and developers. This explains the market-crushing returns in 2016, which is a nice bonus to add to the yields.

Some of the top real estate names you’ll find in VGSIX include Simon Property Group Inc (NYSE:SPG), Public Storage (NYSE:PSA) and Welltower Inc (NYSE:HCN).

*Note: VGSIX pays quarterly dividends. Vanguard does not quote a 30-Day SEC Yield, but calculates an unadjusted effective yield, which is 3.41% as of June 30, 2016, and is based on the full amount of REIT distributions (dividend income, as well as return of capital and capital gain).

Best Vanguard Funds for Dividend Lovers: Vanguard Dividend Appreciation Index (VDAIX)

Best Vanguard Funds for Dividend Lovers: Vanguard Dividend Appreciation Index (VDAIX)SEC Yield: 2.05%
Expenses: 0.19%
Minimum Initial Investment: $3,000

A solid portfolio of dividend funds is not complete without a fund like Vanguard Dividend Appreciation Index (MUTF:VDAIX).

VDAIX tracks the Nasdaq U.S. Dividend Achievers Select Index, which focuses on high quality companies like Johnson & Johnson, The Coca-Cola Co (NYSE:KO), and PepsiCo, Inc. (NYSE:PEP) that have the potential to increase their dividends over time.

Investors seeking dividends love funds like VDAIX because they get the potential for growing dividends in a passive way without actively seeking higher dividends on their own.

Therefore, VDAIX can make for an outstanding core holding in a portfolio of dividend funds.

As of this writing, Kent Thune did not personally hold a position in any of the aforementioned securities. His No. 1 holding is his privately held investment advisory firm in Hilton Head Island, SC. Under no circumstances does this information represent a recommendation to buy or sell securities.

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