When it comes to choosing dividend stock exchange-traded funds (ETFs) for your portfolio, a higher yield isn't always better. In fact, one of my favorite dividend index funds is the Vanguard Dividend Appreciation ETF (VIG -0.24%), which has a yield of just 1.9% as of this writing. In contrast, many popular dividend ETFs have yields in the 3% to 4% range in the current market environment.

Despite the relatively low yield, it's important to take a closer look at this one, especially if you're still a decade or more away from retirement. While it doesn't emphasize current income as much as some dividend ETFs do, it can be a great combination of growth potential and the likelihood of a much higher income stream in the future.

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The Vanguard Dividend Appreciation ETF in a nutshell

As the name suggests, the Vanguard Dividend Appreciation ETF emphasizes dividend growth. Specifically, the fund tracks the S&P U.S. Dividend Growers Index, which includes large-cap stocks with an established track record of growing their dividends year after year.

The ETF owns a total of 338 stocks and has a rock-bottom expense ratio of just 0.05%, which is low even for a Vanguard ETF. This means that your annual investment expenses would be just $5 for every $10,000 invested. (Note that this isn't a fee you have to pay; it will be reflected in the investment's performance over time.)

Here's why long-term income investors should pay attention

Now let's get into why I'm suggesting a sub-2% yielding dividend ETF for long-term investors. First, because it emphasizes dividend growth, it's fair to assume that the ETF's income stream will be far larger in a decade or two than it is today.

Second, because it doesn't limit itself to mature businesses with high dividend yields, it has a pretty high concentration in technology stocks and other businesses that are still growing fast. So, not only does it pay dividends, but the ETF also has excellent total return potential, and the performance backs that up (more on that in a bit).

To illustrate the types of stocks the ETF owns, here is a list of the Vanguard Dividend Appreciation ETF's seven largest stock holdings, as of the latest information, along with their respective track records of dividend growth over time.

Data source: Vanguard, company investor relations websites. Dividend yields as of May 21, 2025.

The chart provides a few important takeaways. First, as you can see, dividend yield isn't a major focus. Four of the top seven holdings have a current yield of less than 1%. However, all of the top holdings have increased their dividends every year for more than a decade, and five out of the seven pay at least 50% higher dividends than they did five years ago.

The bottom line

The Vanguard Dividend Appreciation ETF is a great combination of growth potential and income. The ETF has not only produced 11.2% total returns over the past decade but has also more than doubled its dividend distributions in that period. In a nutshell, this ETF can be a great choice for investors who care more about building a future income stream than current yield.