Want Decades of Passive Income? Buy This Index Fund and Hold It Forever

• Dividend maturation stocks supply investors with dependable income that tin outpace inflation.

• This Vanguard ETF invests successful companies with agelong way records of raising their dividends.

• Lower involvement rates and a displacement towards non-tech stocks could pb to coagulated returns ahead.

• 10 stocks we similar amended than Vanguard Dividend Appreciation ETF ›

If you're looking for an ETF that's susceptible of generating decades of consistent, predictable passive income, you're looking for stocks susceptible of doing the same.

Sure, high-yielders mightiness beryllium capable to nutrient much income, but there's ever the question of whether those yields are sustainable. An economical downturn could easy pb to immoderate of those large payouts getting cut.

In my opinion, you privation companies that person not lone paid dividends for years but person besides grown them. That demonstrates committedness and an quality to support generating the currency flows and profits indispensable to support rewarding shareholders indefinitely.

That's wherefore the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is simply a large prime for semipermanent income. Granted, the existent 1.6% output astir apt isn't going to get anybody excessively excited, but if your clip skyline is decades and you privation a portfolio that's durable capable to get you there, VIG is worthy a look.

VIG tracks the S&P U.S. Dividend Growers index. This scale targets U.S. companies that person grown their yearly dividend for astatine slightest 10 consecutive years, but it doesn't see the apical 25% of the highest-yielding stocks. Qualifying stocks are past weighted by marketplace capitalization.

There are a mates of noteworthy things astir this approach.

First, the elimination of the highest yields close disconnected the bat improves portfolio quality. Some of these stocks could beryllium referred to arsenic "yield traps," meaning that they're precocious due to the fact that of a falling stock price, not improved fiscal performance. Those are the stocks that are susceptible to cuts and below-average returns.

Second, that surface unluckily besides eliminates immoderate genuine high-yielders. Some of the traditionally higher-yield sectors, including existent estate, energy, and utilities, person minimal beingness successful VIG's portfolio. Investors astir apt shouldn't ever expect the Vanguard Dividend Appreciation ETF to beryllium a root of important income.

Third, the cap-weighting methodology produces a antithetic portfolio creation from galore of VIG's peers. It fundamentally disregards dividend history, quality, and output and simply gives the biggest companies the biggest weights. That becomes evident erstwhile you spot that VIG's 3 largest holdings, Broadcom, Microsoft, and Apple, each person yields nether 1%. That helps the fund's maturation profile, but it doesn't assistance its income prospects.