Vanguard Consumer Staples ETF (NYSEARCA:VDC) has three big things going for it.
First, it’s in the right sector. Consumer spending has been increasing over the past couple months and consumer sentiment is rising. Consumer psychology is an important factor in whether there is economic growth.
According to the Bureau of Economic Analysis, consumer spending in the U.S. generates about 70% of the country’s GDP. That means, we live in a consumer-generated economy. You may have thought the government or the big financial institutions controlled the means to powering the U.S. economy, but it’s really up to you and me.
And at this point, we’re doing a pretty good job, at least relative to where we’ve been.
The surge in consumer spending, however, hasn’t resulted in a run on big-ticket items, rather it’s the smaller stuff we buy every week. And that is why it’s little surprise the kind of companies that make up VDC’s top five: Procter & Gamble Co (NYSE:PG), The Coca-Cola Co (NYSE:KO), PepsiCo Inc (NYSE:PEP), Philip Morris International Inc. (NYSE:PM) and Altria Group Inc (NYSE:MO).
One thing that stands out here is the fact that most of these companies are dividend aristocrats, raising their dividends every year for more than 25 years.
Their dividends demonstrate that these firms are very successful and very shareholder friendly. They’ve also been around long enough to have seen their share of difficult days and come out stronger every time.
And since we’re talking about dividends, that brings me to point No. 2. VDC is handing out a very respectable, near-3% dividend. This is a factor in the ETF’s total return, meaning that we’re looking at a minimum return of 3% just for holding VDC. That’s a pretty good head start. And it’s the highest dividend given out by the top consumer staples exchange-traded funds.
But the dividend also is a factor in point No. 3. You see, Vanguard is known for its consistently low fees.
Most individual investors look at performance and maybe yield, but few pay much attention to management fees for open end mutual funds or ETFs. And that can mean a huge difference in performance once those fees are subtracted.
For example, of the top six funds, only one has lower fees than VDC — Fidelity MSCI Consumer Staples Index ETF (NYSEARCA:FSTA). VDC has a 0.1% fee and FSTA has a 0.08% fee. Some of the other big ones, have fees six times that high.
That means you could be paying your ETF half a percent or more just for holding their fund. Applied to the dividend, that could be a significant cut in payout and would also dampen you performance. For VDC, it takes the dividend down to 2.9%. But at an expense ratio of 0.6%, you would be starting at 2.4%. Or basically $6 on every $1000 you invest.
VDC is the way to play not only a recovery, but even a simple stabilization of the U.S. economy. It’s has a low management fee, it’s well priced and has plenty of headroom.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.