VIG, Better Than Individual Stocks

[delphian]

I don't really think VIG is better than individual stocks, but I thought the title would get your attention =)

One of my first purchases when I became interested in dividend investing was VIG. It made sense at the time, I was still transitioning out of a index/mutual fund mindset. Now however I have little interest in putting more money into the index. Does anyone else own VIG, and does that qualify as a good passive index for dividend growth investing? Or does it defeat some of the fundamental advantages of picking and choosing individual quality companies?

[Dividend Watcher]

Yes to both questions, IMO. If someone doesn't have the time or inclination to plan, analyze, purchase and monitor individual companies, then VIG, or one of the other "dividend" focussed mutual funds, may be a decent alternative investment. For me, I'd still prefer holding individual companies.

I have a couple problems with mutual funds:

1. You cannot choose which companies they hold. If you're later in the accumulation phase, you may want to transition to a greater percentage of higher yielding securities for your holdings, you may not want to be invested in certain sectors or, when you are younger, you may want to emphasize faster growing dividend growth stocks. No two investors sentiments are the same.
   
2. Mutual funds have to take into account purchases and redemptions so they have to keep a certain portion of their investment liquid to meet redemption demands. During a downturn, panicking investors can force the fund to liquidate holdings to meet those demands penalizing the rest of the investors.
   

I wouldn't have a problem if I was just beginning to focus on dividend growth investing but, for me, I'd much prefer to pick what I want to hold and determine what I'm going to do with the dividends as they roll in (reinvest or accumulate and purchase something else) on my own.

[hendi_alex]

In general, I prefer to cherry pick from the top holdings of such funds. For example, here are the top ten for VIG, according to Yahool

Top 10 Holdings (36.28% of Total Assets)
Company Symbol % Assets
International Business Machines IBM 4.13
Wal-Mart Stores, Inc. Common St WMT 4.07
Exxon Mobil Corporation Common XOM 4.03
Coca-Cola Company (The) Common KO 4.02
Pepsico, Inc. Common Stock PEP 3.87
QUALCOMM Incorporated QCOM 3.86
Johnson & Johnson Common Stock JNJ 3.64
United Technologies Corporation UTX 3.25
3M Company Common Stock MMM 2.74
CVS Caremark Corporation Common CVS 2.67

IMO one could pick about 5 tickers from above and have perhaps 90% of the diversification benefit of the fund. At the same time one could get by on just viewing a few favorite metrics and cherry pick. Perhaps look at current yield, debt load, dividend coverage, dividend growth rate. Then over time, accumulate additional information at your leisure, accumulating more shares or substituting a more attractive company when assessment dictates such.

[Dexter]

I own a few shares of VIG but I'm not very happy with the yield, vanguard lists the SEC yield as 2.02%, and yahoo finance has the yield at 1.88%.

Needless to say one could do much better in terms of yield with individual stocks or other securities. My purchase price is $59.24 and I don't want to pay taxes on the capital gains so I keep it. I haven't added to it in a while.

I would love to think I could do better with individual stocks, but what if I can't? This is why I think it's good to have a little bit of everything - individual stocks, index funds, dividend funds, bond funds, reits, and closed end funds.

[rnsmth]

Of that list of VIG's top 10, only PEP has a 3% yield, all the other ones are lower. I own two of them, there are several that I would absolutely not own and maybe two that I would buy if the valuation and cash available worked out - those are XOM and PEP - I currently own KO and CVX