Dividend ETF pays a Christmas bonus

The Vanguard Consumer Staples ETF has trounced the broader market and doesn't require a high initial investment.

By TheStreet Staff Nov 15, 2011 12:33PM

By John Defeo, TheStreetTheStreet

 

Some dividend investors may favor a reliable stream of dividend checks; others might prefer a single, lump-sum around the holidays. If you find yourself in the latter category, consider the Vanguard Consumer Staples ETF (VDC).

 

This Vanguard ETF is under the radar, but offers several compelling reasons to own it:

 

1. The ETF has trounced the broader market, losing less during the financial crisis and gaining more during the rebound.

 

2. The ETF is more approachable than its mutual fund cousin. The Vanguard Consumer Staples Index Fund (VCSAX) has a $100,000 minimum investment and the same 0.24% management fee. You can buy into the Consumer Staples ETF for less than $100.

 

3. The ETF -- along with all Vanguard ETF offerings -- is great for dollar-cost averaging; there is no transaction fee for purchases or sales.

 

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4. The ETF out-yields the S&P 500 ($INX) index by a substantial margin (2.67% vs. 2.01%).

 

5. The ETF has raised annual dividend distributions through the financial crisis.

 

In regard to risk, Vanguard rates its Consumer Staples ETF as a "5" -- more risk, more reward -- but this isn't necessarily cause for alarm; Vanguard gives all sector-specific stock funds this designation.

 

That said, the Consumer Staples fund is particularly concentrated -- the top 10 stock holdings account for 63.1% of the fund. Some might consider this concentration risky, but for investors who like to know what his or her ETFs hold (a wise decision, in this author's opinion), you can analyze the fund's holdings to arrive at your own sum-of the-parts conclusion.

 

Here's a glimpse into the 10 largest holdings of the Vanguard Consumer Staples ETF -- the fund makes a single-dividend distribution annually (during the week of Christmas).

 

As always, stock ratings should not be treated as gospel; rather, use them as a starting point for your own research. Similarly, all investors should apply their own valuation criteria to arrive at a purchasing decision.

 

1. Procter & Gamble (PG) is a global consumer product company with a portfolio of brands that includes Pampers, Tide and Gillette.

 

Percentage of the ETF (as of 9/30/2011): 12.9%

Dividend Yield: 3.29%

5-Year Dividend Growth (compounded annually): 9.33%

TheStreet Ratings' Grade: Buy (A-)

 

 

2. Coca-Cola (KO) is a global beverage company with a portfolio of several hundred brands including: Coca-Cola, A&W and Sprite.

 

Percentage of the ETF: 10.0%

Dividend Yield: 2.76%

5-Year Dividend Growth: 7.26%

TheStreet Ratings' Grade: Buy (A)

 

 

3. Philip Morris (PM) is an international tobacco company with a portfolio of brands including Marlboro and L&M.

 

Percentage of the ETF: 7.9%

Dividend Yield: 4.30%

3-Year Dividend Growth: 16.58%

TheStreet Ratings' Grade: Buy (B+)

 

 

4. Wal-Mart (WMT) is a multinational retailer that owns and operates Wal-Mart and Sam's Club stores.

 

Percentage of the ETF: 6.9%

Dividend Yield: 2.47%

5-Year Dividend Growth: 12.55%

TheStreet Ratings' Grade: Buy (A-)

 

 

5. PepsiCo (PEP) is a global food and beverage company with a portfolio of brands that includes Pepsi-Cola, Gatorade and Tropicana.

 

Percentage of the ETF: 6.8%

Dividend Yield: 3.26%

5-Year Dividend Growth: 10.26%

TheStreet Ratings' Grade: Buy (A-)

 

 

6. Altria (MO) is a tobacco and spirits company with a portfolio of subsidiaries including Philip Morris USA, John Middleton and Ste. Michelle Wine Estates.

 

Percentage of the ETF: 4.4%

Dividend Yield: 5.90%

5-Year Dividend Growth: 13.65%

TheStreet Ratings' Grade: Buy (B+)

 

 

7. Kraft Foods (KFT) is a food and beverage company with a portfolio of brands including Nabisco, Cadbury and Oscar Mayer.

 

Percentage of the ETF: 4.4%

Dividend Yield: 3.26%

5-Year Dividend Growth: 3.86%

TheStreet Ratings' Grade: Buy (A+)

 

 

8. CVS Caremark (CVS) is a retail pharmacy and health care corporation.

 

Percentage of the ETF: 3.6%

Dividend Yield: 1.27%

5-Year Dividend Growth: 16.95%

TheStreet Ratings' Grade: Buy (A)

 

 

9. Colgate Palmolive (CL) is a personal care company with a portfolio of brands that includes Colgate, Palmolive and Irish Spring.

 

Percentage of the ETF: 3.4%

Dividend Yield: 2.60%

5-Year Dividend Growth: 10.18%

TheStreet Ratings' Grade: Buy (A+)

 

 

10. Costco (COST) operates a chain of membership warehouse stores.

 

Percentage of the ETF: 2.8%

Dividend Yield: 1.16%

5-Year Dividend Growth: 9.42%

TheStreet Ratings' Grade: Buy (A+)

 

1Comment
Nov 16, 2011 10:18AM
avatar
Hm. Another article on MSN noted that Wall Street was having 'a tough time' as they have become accustomed to having a get rich quick bubble that provides them with easy money, such as housing, dot com, and housing again. Now, mutual funds are dropping out of favor, having tanked a whole lot of 401k's....and here's the ETF which is outperforming the mutual funds, and a lot of investment money is flowing in. Ok, people, how are they going to scam us on this one?
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