What’s Going On with the US Credit Rating?

Moody’s recent downgrade of the U.S. credit rating from AAA to AA1 is not just symbolic—it has real implications for investors. While the U.S. still holds a strong investment-grade rating, the downgrade signals growing concern about America’s ballooning federal debt, political gridlock, and the likelihood of future fiscal instability. A lower credit rating typically means the government might pay slightly higher interest rates when borrowing money, which can ripple through bond markets and affect consumer loans, mortgages, and corporate financing. For equity investors, it’s a yellow flag, not a red one—but it does remind us that volatility is not a bug in the system; it’s a feature. VIG offers exposure to companies that are better equipped to handle this kind of uncertainty, thanks to strong balance sheets and a consistent track record of increasing shareholder payouts.

Why I’m Not Panicking (Much)

Yes, headlines are dramatic. But zooming out reveals something more reassuring: markets have faced far worse and survived. My strategy is not based on predicting news cycles; it’s rooted in consistent investment behavior. I don’t invest because the market looks calm. I invest because my strategy, month in and month out, is to build exposure to quality. And right now, quality means companies with reliable dividends, low debt, and a steady hand on the tiller. The beauty of investing in something like VIG is that you don’t have to guess when the next tantrum will strike—you’re already insulated by owning companies built to endure it.

Meet VIG: Vanguard Dividend Appreciation ETF

VIG tracks the S&P U.S. Dividend Growers Index, which includes companies that have increased their dividend for at least 10 consecutive years. That might sound simple, but it’s a powerful screen. It weeds out risky, unsustainable high-yield stocks and favors companies with discipline, financial strength, and a culture of rewarding shareholders. The fund currently holds around 338 stocks, with top sectors being industrials, technology, financials, and consumer staples. It’s broad, yes, but focused where it matters. And because it’s a Vanguard fund, the expense ratio is an ultra-low 0.06%—meaning more of your returns stay in your pocket.

Dividend Growth Strategy: The Secret Sauce

Dividend growth investing is not about chasing the highest yields—it’s about finding the companies that increase their payouts year after year. Why does that matter? Because it signals strong earnings, good cash flow, and a management team confident in the business’s future. Historically, dividend growers have delivered better risk-adjusted returns than both non-dividend payers and the highest-yielding stocks. According to Ned Davis Research, dividend growers have returned an average of 10.2% annually, versus 6.8% for non-growers. That’s the magic of compounding combined with discipline.
VIG by the Numbers: Yield, P/E, Expense Ratio

Numbers don’t lie—and VIG’s numbers tell a story of quality at a reasonable cost. As of May 2025, VIG has an SEC yield of approximately 1.85%. That’s not flashy, but it’s not supposed to be. The fund’s focus is on growing payouts over time, not chasing high yields that might disappear in the next downturn. Its average price-to-earnings (P/E) ratio sits around 22.4—higher than some value funds, but expected for a fund holding steady growers like Microsoft, Apple, and Visa. The expense ratio is a featherweight 0.06%, meaning that on a $10,000 investment, you’re paying just $6 a year in fees. That’s the Vanguard promise: no-frills, low-cost exposure to disciplined, proven companies.

Top Holdings: Who’s in the Club?

VIG’s top 10 holdings make up about 30% of the fund and read like a who’s-who of dividend discipline: Microsoft, Apple, JPMorgan Chase, Visa, Walmart, Eli Lilly, Broadcom, Costco, ExxonMobil, and Mastercard. These aren’t speculative bets. These are established businesses with global footprints, fortress balance sheets, and long histories of profitability. Each has raised its dividend for at least 10 years straight. Walmart leads with 50 consecutive years of increases. ExxonMobil isn’t far behind at 43 years. Even Apple and Microsoft, often labeled growth stocks, have become dividend machines. These are companies that have weathered recessions, tech crashes, inflation scares—and still kept paying (and raising) dividends.

VIG’s Top 20 Holdings: Dividend Histories

Expanding beyond the top 10, VIG’s next 10 largest holdings include household names like Home Depot, PepsiCo, McDonald’s, Abbott Labs, Cisco, and Nike. Each brings not just brand recognition, but a solid dividend track record. For instance, PepsiCo has increased its dividend for 51 straight years. McDonald’s has done so for 46. Home Depot clocks in with 14 years of increases, and Cisco at 12. The consistency here is remarkable—and it’s what makes the ETF so resilient. Even if one or two holdings hit a rough patch, the strength of the broader group tends to carry the load. That’s the quiet power of a well-constructed dividend growth fund.

Sector Breakdown: A Smooth Diversification Spread

VIG isn’t just diversified across companies—it’s diversified across sectors. Industrials lead the way with roughly 22% of the portfolio, followed by healthcare, technology, consumer staples, and financials. This blend gives you exposure to economically sensitive sectors like industrials and financials, defensive plays like healthcare and staples, and high-growth tech. What you won’t find is a heavy dose of utilities or real estate—sectors often favored for yield, but more prone to dividend cuts. VIG’s sector spread is intentional and strategic: it’s built for stability, not for headlines.

How VIG Handles Risk: The 10-Year Dividend Rule

One of the lesser-sung features of VIG is its rule for inclusion: only companies that have raised their dividends for 10 straight years make the cut. This isn’t just a feel-good metric—it’s a quality filter. It screens out firms that might have gotten lucky in one or two years and keeps only those that have weathered economic storms, shifts in consumer demand, and market downturns without missing a beat. The 10-year mark is meaningful—it represents consistency across multiple business cycles. That translates into lower portfolio turnover, more reliable income, and lower risk for the long-term investor.

Why Excluding High-Yielders Is Actually Smart

It might sound counterintuitive, but avoiding the highest-yielding dividend stocks can actually improve returns. Why? Because high yield can be a red flag. Sometimes a stock’s yield is high simply because its price has collapsed due to financial distress or declining fundamentals. VIG avoids the top 25% highest-yielding stocks in its universe. This is a smart move—it helps steer clear of companies that might be forced to cut dividends in tough times. The focus is on sustainability, not size. In other words, VIG bets on growers, not showers.

Historical Returns: Calm and Consistent

Since its inception in 2006, VIG has delivered an average annual return of about 9.7%. It may not beat the Nasdaq every year, but it doesn’t have to. The magic is in the compounding, the consistency, and the lower volatility. Investors who parked $1,000 in VIG at launch would now be looking at over $5,000. And that’s not counting reinvested dividends. More impressively, the fund has increased its dividend payouts by more than 55% over the past five years alone. In a world obsessed with moonshots, that kind of quiet compounding is a breath of fresh air.

A Look at the Past 5 Years of Performance

Over the past five years, VIG has delivered a total annualized return of 13.1%. That includes a global pandemic, inflation spikes, a bear market, rate hikes, and a war in Europe. Through it all, VIG’s portfolio companies kept paying—and raising—dividends. The ETF’s dividend yield might not turn heads, but the growth rate should. If you reinvest dividends and let the math do the work, VIG quietly builds wealth. And unlike speculative plays, you get paid to wait.

How VIG Compares to SCHD, DVY, and Others

VIG isn’t the only dividend ETF out there. Schwab’s SCHD is another favorite, known for its higher yield and value tilt. DVY, from iShares, offers even more income—at the cost of greater volatility. Compared to those, VIG is the steady tortoise: less exciting in the short term, but more consistent in dividend growth. SCHD may outperform in yield, but VIG shines in quality and dividend sustainability. It’s not a question of which is better—it’s about which fits your strategy. For my monthly buy-and-hold approach, VIG is the one I trust most to grow with me.

Psychology of Playing It Safe (and Still Winning)

In investing, doing nothing can be the hardest thing. Especially when headlines scream crisis. But data shows that those who stick to quality, dividend-paying stocks tend to outperform over time. There’s a deep psychological benefit to owning assets that literally pay you to hold them. That check—even if small—is a reward for patience. VIG makes it easier to stay the course, and that’s half the battle. It’s not just about returns—it’s about peace of mind.

How VIG Fits in Different Portfolio Styles

Whether you’re building a conservative retirement portfolio or a balanced growth strategy, VIG can play a vital role. For income-focused investors, it adds reliable, growing payouts. For younger investors, it’s a stable core holding around which to take measured risks. Even aggressive portfolios benefit from having a ballast like VIG—especially during downturns. It’s a fund that adapts to many styles, while remaining true to its simple mission: grow wealth, quietly.

Why I’m Buying in May (Because That’s What I Always Do)

This isn’t a market-timing move. It’s May, and I buy something every month. That’s the system. As part of my [Up +40% Free Stock Strategy](https://deminvest.wordpress.com/up-40-free-stock-strategy/), I pick a stock or ETF I like, discuss it with readers, and invest $1,500. No exceptions. This month, the honor goes to VIG—a pick that feels especially right given the current market mood. It’s calm. It’s dependable. It’s not trying to impress anyone. Just like the strategy.

What If Rates Stay High or the Downgrades Continue?

If interest rates remain elevated or the U.S. faces more downgrades, expect volatility. But VIG’s holdings are built to last. These are companies that generate real profits, often with strong pricing power and low debt loads. High rates may impact growth stocks, but dividend growers tend to fare better. They’re often mature businesses with robust free cash flow. So while the headlines may stay dramatic, VIG’s portfolio is designed to keep delivering.

When Not to Use VIG: It’s Not for Everyone

Let’s be clear—VIG isn’t a get-rich-quick tool. If you want sky-high yields, small-cap rockets, or bleeding-edge innovation, look elsewhere. It’s not for traders, and it’s not for FOMO-driven investing. VIG is slow, steady, and sober. It rewards patience, not adrenaline. That makes it the wrong choice for some, and the perfect fit for others. If you’re in the second camp—welcome aboard.

Long-Term Outlook: Let the Dividends Do the Work

Looking ahead, VIG’s long-term case remains strong. U.S. companies with growing dividends continue to outperform their peers. With over 300 holdings, VIG offers built-in diversification and durability. Add in a low expense ratio and Vanguard’s reliability, and you’ve got a fund that works hard in the background. It’s not sexy, but it’s solid. And in investing, that’s usually the better bet.

Conclusion: Calm, Dividends, and a Cup of Tea

May was loud. VIG was quiet. I like that contrast. In a world of market noise, dividend growth is a kind of financial mindfulness. Each month, I invest $1,500—not because I expect fireworks, but because I believe in the power of calm consistency. So I sip my tea, click ‘buy’ on VIG, and smile. Because sometimes, the most radical move is to keep doing what works.