Vanguard Dividend Growth: In Search of New Income Sources

The manager of this Kiplinger 25 fund looks for "high-quality" companies that regularly boost dividends. But what is "high quality" these days?

Vanguard Dividend Growth (symbol VDIGX), a member of the Kiplinger 25, was originally designed for aging baby-boomers who wanted a growing stream of income and the opportunity for capital appreciation. But manager Donald Kilbride says the stock market's 2007-09 implosion "scared the bejesus out of everybody" and so his fund, which invests in the stocks of high-quality companies that regularly boost their payouts, began attracting younger customers as well.

Complicating matters for managers like Kilbride is that the definition of “high quality” has changed. Financial companies used to be lumped in with producers of drugs, energy and consumer necessities as dependable dividend payers. But since the collapse of the financial sector in 2008, dividend-oriented investors have come to view that group as iffy, in part because it’s unclear how much capital regulators will require banks to retain.

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Bob Frick
Senior Editor, Kiplinger's Personal Finance