Vanguard’s Three Dividend Based Funds and Their Holdings

I always find it an interesting exercise to take a look at various mutual fund companies and the top holdings that they have reported. Most investors in North America are familiar with Vanguard funds primarily because of their low-fee indexing style. They have proven to be very successful funds with good returns – better than many of the “actively managed” mutual funds on the market. I thought I would have a look at the dividend based mutual funds that Vanguard offers and their respective top holdings.

1. Vanguard Dividend Appreciation Index Fund

Objective: Vanguard® Dividend Appreciation Index Fund seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that have a record of increasing dividends over time.

Top Holdings (as of 06/30/2007):
The following 10 companies make up 39% of the funds total assets

1 Chevron Corp.
2 ExxonMobil Corp.
3 International Business Machines Corp.
4 General Electric Co.
5 American International Group, Inc.
6 Wal-Mart Stores, Inc.
7 The Coca-Cola Co.
8 The Procter & Gamble Co.
9 Johnson & Johnson
10 PepsiCo, Inc.

2. Vanguard Dividend Growth Fund

Objective:Vanguard® Dividend Growth Fund seeks to provide, primarily, a growing stream of income over time and, secondarily, long-term capital appreciation and current income.

Top Holdings (as of 06/30/2007):
The following 10 companies make up 28% of the funds total assets

1 ExxonMobil Corp.
2 Total SA ADR
3 ConocoPhillips Co.
4 Chevron Corp.
5 Eli Lilly & Co.
6 Medtronic, Inc.
7 General Electric Co.
8 Automatic Data Processing, Inc.
9 Schering-Plough Corp.
10 Cardinal Health, Inc.

Vanguard High Dividend Yield Index Fund

Objective:Vanguard® High Dividend Yield Index Fund seeks to track the performance of a benchmark index that measures the investment return of common stocks of companies that are characterized by high dividend yields.

Top Holdings (as of 06/30/2007):
The following 10 companies make up 37% of the funds total assets

1 ExxonMobil Corp.
2 General Electric Co.
3 AT&T Inc.
4 Citigroup, Inc.
5 Bank of America Corp.
6 The Procter & Gamble Co.
7 Chevron Corp.
8 Pfizer Inc.
9 Johnson & Johnson
10 JPMorgan Chase & Co.

The question now becomes, what do I do with this information? I like to use it as a starting point for research – start with the strategies you are using to build your portfolio. Are you looking for higher yield or dividend increases? As fund # 1 above attempts to track an index, it might be more prudent to look closer at fund #2 as it employs more of an active philosophy. That is for you to decide. Once you have chosen a strategy, start to evaluate each of the holding based on your research process. Look at things such as earnings growth, revenue growth, profit margins, and dividend payout ratio. For all of these, and the multitude of other metrics that can be used to evaluate a company, be sure to look at the trends from the data. A particular EPS number in a given year does not tell you much – it is the EPS trend going back a number of years that provides you with an indication on the performance of the company.

I look at this data a number of times a year from various mutual fund companies. It is an interesting exercise to do, and most importantly I tend to learn something new about investing each and every time.