Dividend Stock ETFs vs. Dividend Stock Mutual Funds

07/21/2011 0 comments

When it comes to dividend stock investing for a retirement portfolio, investors have the following three ways:

  • Invest in dividend stocks directly. 
  • Invest in dividend stock ETFs such as Vanguard Dividend Appreciation (VIG)
  • Invest in dividend stock mutual funds

In an article titled as Top Dividend Funds Trounce S&P 500 published on thestreet.com, the authors picked the following actively managed dividend mutual funds: 

  • Frost Dividend Value (FADVX)
  • BlackRock Equity Dividend(MDDVX)
  • Columbia Dividend Income(LBSAX) 
  • RiverSource Dividend Opportunity(INUTX)

The following shows the performance comparision among these four mutual funds and Vanguard Dividend Appreciation ETF (VIG)


Portfolio Performance Comparison


Portfolio/Fund Name1Yr AR1Yr Sharpe3Yr AR3Yr Sharpe5Yr AR5Yr Sharpe
FRDAX 25% 209% 6% 32% 4% 14%
INUTX 25% 189% 8% 27% 5% 14%
LBSAX 20% 150% 4% 22% 4% 16%
MDDVX 23% 183% 3% 10% 4% 15%
VIG 27% 218% 7% 29% 6% 22%


From the above table and chart, it is clear that the low cost Vanguard VIG beats all of the four actively managed mutual funds by a big margin in the 1 and 5 years. This outperformance can be further seen here for a longer period. 

As of 6/30/2011, the top ten holdings of VIG are

1 McDonald's Corp (MCD)
2 Chevron Corp (CVX)
3 ConocoPhillips (COP)
4 PepsiCo Inc/NC (PEP)
5 Coca-Cola Co/The (KO)
6 United Technologies Corp (UTX)
7 International Business Machines Corp (IBM)
8 Exxon Mobil Corp (XOM)
9 Procter & Gamble Co/The (PG)
10 3M Co (MMM)

The top ten holdings account for 40.5% of the total assets held.

Since the fund has very low turn over rate (about 15%), the top holdings are excellent candidates for stock investors. 

For active stock investors, it is also of intersts to look at the following comparison between VIG and diversified dividend paying ETF portfolios that use stock and REIT ETFs. 


Portfolio Performance Comparison


Portfolio/Fund Name1Yr AR1Yr Sharpe3Yr AR3Yr Sharpe5Yr AR5Yr Sharpe
Retirement Income ETFs Strategic Asset Allocation Risk Profile 0 23% 141% 7% 26% 6% 20%
Retirement Income ETFs Tactical Asset Allocation Risk Profile 0 21% 127% 17% 88% 16% 76%
VIG 27% 218% 7% 29% 6% 22%

For longer time comparison, refer here

The takeaway from this is that when it comes to dividend stock fund investing, using low cost ETFs is a good approach. Furthermore, active stock investors can benefit from the top stock holdings of low turn over funds. 

Symbols: MCD, CVX, SPX, COP, PEP, KO, UTX, IBM, PG, XOM, MMM, Dividend Stocks, Retirement Investing


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