4 Highly Rated Vanguard Dividend and Income Funds (2024)

Vanguard Dividend Appreciation Index Fund Admiral

• Fund category: Large blend
• Assets under management: $54.5 billion
• Dividend yield: 1.6%
• Expenses: 0.08%, or $8 for every $10,000 invested

Vanguard Dividend Appreciation Index Fund Admiral (VDADX, $39.14) is a passive mutual fund that tracks an index of U.S. large-cap companies that have raised their dividends over time. Specifically, each constituent has improved its payout for at least 10 consecutive years.

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VDADX's portfolio consists of a blend of growth and value stocks of companies that demonstrate both the ability and the commitment to grow their dividends over time. As a result, VDADX shareholders get quality large caps including Microsoft (MSFT) and Walmart (WMT).

Top sector holdings at the moment are consumer discretionary (23%) and industrials (21%), with a 15% weighting in healthcare as well. Technology makes up 12% of assets, but that's less than half of what you'll find in the S&P 500. That's typical of the VDADX, which means performance might at times lag a benchmark like the S&P 500 or Nasdaq Composite when growth is in favor.

But that's what you typically can expect from dividend and income funds. That's OK. You're still getting a solid, low-cost product that can produce decent results in the long run while taking on below-average risk.

"VDADX's five-star rating is driven by its low risk profile, based on its holdings and performance record, as well as its extremely low 0.08% expense ratio," Rosenbluth says.

Learn more about VDADX at the Vanguard provider site.

Vanguard Dividend Growth Fund

• Fund category: Large blend
• Assets under management: $45.6 billion
• Dividend yield: 1.6%
• Expenses: 0.27%

If you prefer a human manager at the helm, Vanguard Dividend Growth Fund (VDIGX, $33.96) is an actively managed product that offers exposure to a diverse mix of dividend focused companies.

It's difficult to find similar dividend and income funds with such low expenses. "Investors willing to pay a little more for active management will find VDIGX appealing as the fund's 0.27% expense ratio is still sharply lower than peers' 0.94%," Rosenbluth says.

Couple the low fees with above-average long-term returns, and you have yourself a strong income-focused core holding.

The VDIGX portfolio currently consists of roughly 40 large-cap stocks, with the highest weights currently belonging to healthcare (21%) and industrial stocks (21%). Consumer staples (15%), consumer discretionary (12%) and financials (11%) also make up large chunks of assets. This results in a set of top-10 holdings that include the likes of American Express (AXP), UnitedHealth Group (UNH) and Johnson & Johnson (JNJ).

Again, the focus here is dividends, which results in a lack of growth, but also below-average risk. That tilt hasn't benefited the fund in the relatively short-term, but VDIGX has beaten the category average over the past 10 years, and it's better than 88% of peers over the past 15.

Learn more about VDIGX at the Vanguard provider site.

Vanguard Long-Term Corporate Bond Index Fund Admiral

• Fund category: Long-term bond
• Assets under management: $5.3 billion
• SEC yield: 3.4%
• Expenses: 0.07%*

Vanguard Long-Term Corporate Bond Index Fund Admiral (VLTCX, $26.80) is a low-cost, index-based fixed-income mutual fund that holds investment-grade corporate bonds with long-term maturities.

Before you buy shares of VLTCX (or any long-term bond fund), remember: Long-term bond prices tend to see more downside pressure in a rising-rate environment than intermediate- and short-term bonds.

Prospective buyers should also be aware of the credit risk associated with investment-grade bonds, which comprise the majority of the VLTCX portfolio. Vanguard Long-Term Corporate Bond Index holds more than 2,400 bonds with an average effective maturity of 23 years. Roughly half the portfolio is in BBB-rated bonds (the lowest level of investment-grade), and another 39% is in A-rated bonds, with the rest rated AA or AAA.

That said, investors in long-term bonds have historically been rewarded with much more stock-like returns over longer time horizons.

VLTCX, which is among the few Vanguard dividend and income funds garnering a full five stars from CFRA, "charges a minuscule 0.07% expense ratio and has a strong reward and lower risk profile, based on its performance record and income generation, according to our model," Rosenbluth says.

* VLTCX is one of a handful of Vanguard products that charges an upfront purchase fee. This fee is 1%. Investors who have the option of investing in ETFs could avoid this by purchasing the Vanguard Long-Term Corporate Bond ETF (VCLT), which also has slightly lower expenses, at 0.05%.

Learn more about VLTCX at the Vanguard provider site.

Vanguard Long-Term Investment-Grade Fund

• Fund category: Long-term bond
• Assets under management: $20.0 billion
• SEC yield: 2.8%
• Expenses: 0.22%

Vanguard Long-Term Investment Grade Fund Investor (VWESX, $10.55) puts the brainpower of Wellington Management and Vanguard to work selecting a portfolio of high-yielding long-term bonds. And it does so for a song.

"Despite being actively co-managed by Wellington and Vanguard's Fixed Income group, VWETX charges a 0.12% expense ratio that is much cheaper than the 0.77% for credit-focused fixed income mutual fund peers," Rosenbluth says.

Like VLTCX, VWESX is concentrated on long-term bonds, with an average maturity of 22 years. But while high-quality corporates are the core of this portfolio, it also will hold a small number of taxable muni bonds. Credit quality is higher, too, with just 6% of holdings carrying a BBB rating, 64% at A and the rest above.

Again, current market and economic conditions don't favor long-term bonds, nor the Vanguard dividend and income funds that hold them. But VWESX has beaten both the category average and its benchmark over longer-term (10 and 15 year) time horizons, thanks in part to that high credit quality.

"The strong risk profile and modest costs contribute favorably to CFRA's five-star rating," Rosenbluth says.

Learn more about VWESX at the Vanguard provider site.