Dividend Investing Has Beaten The Market The Last 16 Years

So why do you want to build a portfolio of dividend stocks?

Let me tell you why.

Dividend Stocks Have Had Better Performance Than The Market

VDIGX, the Vanguard Dividend Growth Fund, has outperformed both VTI (the Vanguard Total Stock Market Fund) and the S&P 500 over the last 16 years. With the combined effect of dividends being paid to the investor and the dividend reinvestment programs, dividend stocks are a weapon of mass compounding. In other words, your portfolio becomes a mega compounding machine.

Below is a side-by-side comparison using PortfolioVisualizer to show the performance of VDIGX (indicated in blue as Portfolio 1), VTI (indicated in red as Portfolio 2), and the S&P 500 (indicated in orange).


vdigx vs vti vs spy
VDIGX (In Blue) vs VTI (In Red) vs SPY (In Orange)

As you can see from the graph above, the image also shows that VDIGX has lower volatility (indicated with the 12.00% standard deviation). Additionally, VDIGX has higher compounded average growth rate (CAGR). And during the worst year, VDIGX only lost 25.57% compared to the market’s 36.81%.

Why not buy VDIGX then?

Unfortunately, VDIGX is a great dividend stocks mutual fund but that’s currently closed off to new investors. In addition, they have an expense ratio of 0.26% which is much higher than VTI and SPY’s expense ratio of 0.09%. Thirdly, even if you could invest in VDIGX, the initial account minimum is $3,000 so you may not be able to get started right away.

But can’t we buy VDADX or VIG instead?

I didn’t choose to analyze VDADX (which supposedly is the replacement for VDIGX since investors can’t get into VDIGX anymore) because it’s fairly new and there was only 4 years worth of historical data. Similarly, VIG appeared around the same time. Additionally, VIG is an ETF and not all brokerages support dividend reinvestments for ETFs. This is a huge deal breaker considering we are talking about creating a portfolio of dividend stocks. It’s like playing basketball and only being allowed to use your left arm.

So How Do I Get Started Building a Portfolio of Dividend Stocks?

So when I found out that VDIGX was closed off to new investors, I said “f* it”, I’ll build my own and use them as a starting point. Fortunately, the holdings inside VDIGX were easy to find on the Vanguard site.

Now you could easily stop at this point and just purchase the top 10 largest dividend stocks in the portfolio, since they would have the most significant impact on VDIGX itself. But I dove a little farther. Since there were only 42 dividend stocks in VDIGX, I decided to backtest them (don’t worry, I did it so you don’t have to) to see which ones had the strongest performance in the last decade.

One good thing about dividend stocks is that their underlying companies are usually strong and mature. We’re not talking about YOLO-ing TESLA stocks or anything. You wouldn’t find growth and momentum companies paying out dividends just yet anyways(maybe a small amount).

Reconstructing VDIGX in Google Spreadsheets

Using the power of Google Spreadsheets and the “=GoogleFinance()” function, reconstructing the VDIGX portfolio only took about an hour to do. I noticed that not all stocks traded on same days and not all were publicly available during the same time periods either.

To standardize the timeline, I only pulled the last 2,500 trading days of each stock. (Also, shout out to Zacks for listing out all the ticker symbols for VDIGX so I don’t have to look them up.)

Once I imported the data of all 42 dividend stocks, I began filtering, cutting out stocks that I did not think would fit into a custom dividend portfolio. This is where you can apply a little discretion and decision making.

First, I cut out DGE.L since it’s not traded in the US Stock Exchanges. If you live or trade in the UK, by all means keep it. It might be a good stock *shrug*.

Next I cut out PX. I don’t do penny stocks. You all know my reasoning.

Third, I calculated the returns for the remaining 40 dividend stocks and cut out the lowest 15. As a result, I was left with the remaining Top 25 performing dividend stocks.

The Remaining Top 25 Dividend Stocks

The Top 25 Dividend Stocks from VDIGX within the last decade are as follows:

Stock If you invested $10,000, you would end up with:
1 V $ 98,117.48
2 TJX 74,850.21
3 SBUX 70,632.12
4 VFC 49,598.82
5 UNP 48,754.02
6 NKE 46,984.83
7 UNH 46,751.37
8 ACN 45,757.07
9 AMGN 41,826.18
10 AMT 39,762.37
11 NOC 38,197.76
12 COST 33,569.12
13 ADP 33,188.34
14 MMC 32,364.71
15 DHR 31,607.96
16 MCD 31,593.80
17 ECL 31,022.93
18 MSFT 30,746.73
19 LMT 28,594.21
20 PSA 28,005.13
21 HON 25,220.71
22 JNJ 22,149.90
23 WBA 22,038.03
24 CB 21,713.63
25 AXP 21,445.92

According to the table above, we can see Visa (V) is a huge winner here with nearly 10x the market value if you invested $10,000.

However, keep in mind that these numbers don’t include dividend reinvestment either so the final numbers would be much higher due to compounding. In other words, if you had only invested in these 25 dividend stocks, your total returns would be exponentially higher than the market.

But hindsight is 20/20.

Top 25 Dividend Stocks Versus the S&P500 Versus VDIGX

Similarly, let’s see how this portfolio would have done versus the S&P and the VDIGX fund over the last 10 years. To tie this all back up, I backtested this portfolio on PortfolioVisualizer. The results are shown below:

top 25 dividend stockx
Top 25 Stocks (In Blue) vs VDIGX (In Red) vs S&P (In Orange) over the last 10 years

As you can see from the graph above, our Top 25 dividend stocks portfolio (noted in blue) had a CAGR of 21.44%, with its best year performing at 42.01% and its worst year at 9.62%. In addition, we deduce that this portfolio has a slightly higher volatility than VDIGX (noted in the red Portfolio 2) but still a lower volatility than the market (noted in gold). In order words, our portfolio is slightly more risky. However, its worst year was multiples higher than VDIGX and the S&P. It’s follows the foundation that the higher returns attributed to this portfolio results in higher risks.

Start Your Own Portfolio

In conclusion, I would say this is a great gateway into dividend investing and hopefully this analysis has provided you with some ideas of where to start your dividend stocks portfolio.

Here’s a link to download a copy of the backtest results if you want to play around with them. Keep in mind that using the “=GoogleFinance()” function to pull data on 42 dividend stocks is a lot of data calling which may lag your spreadsheets. As a result, after you’ve called the data, I would copy the data and “paste as plain text” to get rid of the data calls. The syntax to pull the stock data is:

=googlefinance("Ticker Symbol","Attributed","Beginning Date","Ending Date")

For instance, to call the historical price of Apple stock from the last 10 years, you would use the following syntax:


Remember to replace the parameters in the parenthesis with your own values.


Always gotta have a “Risks” section in these posts. The biggest risk, and disclosure, is that past performance is not indicative of future returns. It may very well be (knowing my luck) that all 25 of those dividend stocks that I picked will do poorly over the next 10 years. But only those with the new and improved Crystal Ball 2000 will know, not my cracked up old crystal ball.

So what? This is all historical data. Who cares?

The thing is, this is to provide a basis and starting point to get your feet wet into dividend stocks. If you had bought the top 25 dividend stocks just one year ago, your return would be around 40% total compared to the 20% in the S&P.

Bear in mind that I am by no means advertising this random portfolio of 25 dividend stocks. Also, 25 is an arbitrary number that I pulled out of my ass that has no significant meaning whatsoever. If you were to build your own portfolio, you might be choosing a different number. In conclusion, it’s good to have a place to start and I hope this post gives you some fresh ideas.

Disclosure: I am long the following dividend stocks: SBUX, UNH, NKE, MSFT, and JNJ.

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1 thought on “Dividend Investing Has Beaten The Market The Last 16 Years”

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