Vanguard closes $30 billion dividend growth fund to new investors

Vanguard closes $30 billion dividend growth fund to new investors
Popular fund is riding wave of investors' love of dividends.
AUG 01, 2016
In a sign of just how feverish the public's love for dividends really is, the Vanguard Group announced it's closing its $30.6 billion Dividend Growth fund (VDIGX) to new investors. Vanguard Dividend Growth, run by Donald Kilbride of Wellington Management, looks for stocks of companies with the ability to raise their dividends over time. In the past six months, Vanguard says, investors have poured $3 billion into the fund, whose assets have almost doubled in three years. “Vanguard is proactively taking steps to slow strong cash flows to help ensure that the adviser's ability to produce competitive long-term results for investors is not compromised,” said Vanguard CEO Bill McNabb in a statement. “We have long been committed to protecting the interests of our funds' shareholders, and demonstrate this conviction by closing or restricting funds to stem further growth.” The shutdown won't affect existing shareholders. Vanguard has a tradition of closing funds when inflows get overwhelming. Currently, for example, Vanguard Capital Opportunity Fund (VHCOX), Primecap Fund (VPMCX), and Primecap Core (VPCCX) are closed to most new investors. Thanks to low interest rates, investors have been pouring money into dividend-paying stocks. The past 12 months, dividend-paying members of the Standard and Poor's 500 stock index have gained 6.07%, vs. a loss of 5.35% for those that don't pay dividends. Even though the yield on the blue-chip S&P 500 is low (and the yield on Vanguard's fund is 1.86%), almost any investment with dividends is still attractive compared with the alternatives. The average yield of S&P 500 companies that pay dividends is 2.17%, vs. 1.51% for the bellwether 10-year Treasury note. Money market funds pay an average 0.11%. Vanguard's Mr. Kilbride gets high marks from Morningstar, which gives the fund a gold rating. The fund has averaged a 9.11% annual gain the past 10 years, vs. 7.83% for the S&P 500. “It's better that they close the fund than add managers and dilute it,” said Dan Wiener, editor of The Independent Adviser for Vanguard Funds, a newsletter. He noted that the fund's inflows may also have benefited from Wall Street's love of low-volatility stocks, many of which are also dividend payers.

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