■ ETF · August 23, 2026
VIG's Index Excludes Top 25% Highest-Yielding Dividend Stocks by Design
Vanguard Dividend Appreciation ETF (VIG) tracks an index that removes the top 25% of highest-yielding dividend stocks, potentially limiting income for investors.
Index Methodology and Yield Exclusion
The Vanguard Dividend Appreciation ETF (NYSEARCA:VIG) tracks the S&P U.S. Dividend Growers Index, which applies a unique screen: it excludes the top 25% of eligible stocks ranked by dividend yield at each annual reconstitution. Existing holdings receive a buffer and can remain unless they climb into the top 15% by yield. This means some of the highest-yielding dividend payers are systematically kept out of the fund.
Impact on Income and Performance
VIG's expense ratio is low at 0.04%, but the methodology's yield exclusion can have a more significant impact on income. For example, AT&T (NYSE:T) pays an annualized dividend of $1.11 per share at $24.90, Verizon (NYSE:VZ) pays $2.83 at $48.54, and Altria (NYSE:MO) pays $4.24 at $65.19. Realty Income yields 4.95% and pays monthly. A fund including these names could generate hundreds of dollars more in annual income on a $10,000 investment, compounding to thousands over time.
Performance comparisons show that high-yield names can outperform VIG. Over the past five years, Altria returned 99.44%, while VIG returned 66.57%. AT&T returned 59.83% in the same period. The screen's assumption that high yields signal distress can exclude winners along with losers.
Overlap and Alternatives
VIG's portfolio overlaps significantly with broad Vanguard equity funds, concentrating in mega-cap quality names. As of April 30, 2026, VIG held $124.6 billion in net assets. Investors seeking higher yield might consider Schwab US Dividend Equity ETF (NYSEARCA:SCHD), which holds names like Verizon (3.65% of portfolio) and Chevron (3.83%). SCHD had $94.9 billion in net assets as of May 2026. iShares Core Dividend Growth (NASDAQ:DGRO) has a 0.08% expense ratio and does not apply the top-quartile yield cut. Over five years, VIG returned 66.57% versus SCHD's 60.82%, but the recurring yield differential can reshape total returns over time.
What it means for income investors
VIG's methodology intentionally underweights high-yield stocks, which may reduce income generation compared to other dividend funds. Investors focused on current income may find that alternative funds provide higher yields, though VIG offers steady dividend growth and low costs.
Reporting based on: 24/7 Wall St.. Figures verified against market data where available.