Is the Vanguard Dividend Appreciation ETF a Buy Now?

The Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) is one of the most popular dividend exchange-traded funds (ETFs) in the marketplace. It's a bit of a unicorn in that its requirement of long histories of dividend growth is balanced with a weighting strategy that allows it to be more growth oriented.

That combination makes it more likely that the fund outperforms the dividend ETF universe in risk-on markets but lags in down or non-tech driven markets. The latter is what we've seen in 2026 -- underperformance and extra volatility.

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But tech rallied strongly in April, and that helped boost the Vanguard Dividend Appreciation ETF's performance again. With the artificial intelligence (AI) trade gaining momentum again, it could be a good time to revisit this fund.

VIG's market cap-weighting strategy gives the portfolio a 23% allocation to tech, higher than most dividend ETFs.

This heavier growth tilt has helped VIG outperform on a total return basis, but its 1.7% dividend yield limits its income potential.

As long as tech leads the market, which is a strong possibility given earnings growth expectations, VIG can outperform the average dividend ETF.

The fund's allocations to financials, healthcare, and consumer staples should provide some downside risk protection if recessionary risks grow.

The fund's weighting methodology currently makes Broadcom (NASDAQ: AVGO), Apple (NASDAQ: AAPL), and Microsoft (NASDAQ: MSFT) the top three holdings. Needless to say, that's not what you expect to see in a dividend ETF and makes it more sensitive to AI trade sentiment.

Other sectors with double-digit allocations, including financials, healthcare, industrials, and consumer staples, give it more blended valuation and risk profile. Whereas many dividend ETFs tilt more toward value, the Vanguard Dividend Appreciation ETF is a mix of value and growth.

The fund's volatility this year has been heavily influenced by the AI trade and geopolitical events. By late March, it was down 8% from its high, a steeper drop than the 6% decline of the WisdomTree U.S. Total Dividend ETF (NYSEMKT: DTD). As these events heated up and the tech trade began to fall out of favor, the Vanguard Dividend Appreciation ETF was more heavily impacted.

Tech (23%), financials (21%), healthcare (18%)

It's a little strange that we need to talk about the tech sector as it relates to a dividend ETF. But given that it's nearly one-quarter of this fund's composition, it's impossible to ignore.

If you look at the macro backdrop, there's a lot to like about this ETF. Tech earnings growth is expected to be strong, and valuations have actually dropped to reasonable levels. U.S. growth has slowed but not to the point where recession risk is high. The non-tech sectors have been a mixed bag performance-wise this year. The healthcare weighting has hurt and is unlikely to do well until we're in a deeper risk-off environment.

Overall, I like where the Vanguard Dividend Appreciation ETF is at based on current conditions. After the Iran war shock in March, the tech trade has taken center stage again. As long as that continues (and I think it will), this ETF is a buy.

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David Dierking has positions in Apple and Vanguard Dividend Appreciation ETF. The Motley Fool has positions in and recommends Apple, Broadcom, Microsoft, and Vanguard Dividend Appreciation ETF. The Motley Fool has a disclosure policy.

Is the Vanguard Dividend Appreciation ETF a Buy Now? was originally published by The Motley Fool