Skip to content
Do Vanguard Returns Include Dividends?

Do Vanguard Returns Include Dividends?

Dividend investing is a great way to increase your cash flow. Even if it can’t get you a yacht (yet) it is always nice to have some extra money. And what better way to do so than investing in some Vanguard exchange-traded funds (ETFs). But, do the Vanguard returns include dividends?

Vanguard average annual returns include changes in share price and reinvestment of dividends and capital gains. Thus, the quoted returns not only reflect the increase in share price but also include dividends.

We all love dividends. With enough, you can just lay down, relax, and enjoy that sweet, sweet passive income. Making you richer without even having to move a finger. With a big capital and a good yield, you can just play it safe and that may as well be all you need to enjoy the best life has to offer. Without having to worry about work or your investments going bust. Financial freedom. Well, that’s everybody’s dreams, isn’t it?

The Vanguard Group that manages $6.2 trillion dollars in global assets is the second biggest provider of ETFs on the market. And for good reason, their vast selection of ETFs are a great investment, outperforming the market more often than not. On top of that most funds also include dividends. If that makes your eyes glitter, you’re in the right place, read on!

FYI: Another great way to get exposure to the real estate sector is by investing in real estate debt. Groundfloor offers fantastic short-term, high-yield bonds that can add diversification to your portfolio!

How do Vanguard ETF Dividends work?

Most Vanguard exchange-traded funds (ETFs) pay dividends on a regular basis, typically once a quarter or year. They include investments in one specific area in the stock market or the fixed-income realm.

In other words stocks and bonds investments pay dividends or interest, which Vanguard distributes back to its customers.

image 15
The average annual returns given on Vanguard’s website include reinvested dividends

Vanguard offers over 60 ETFs that pay dividends: in specific sector stocks like the Vanguard Energy ETF or the Vanguard Health Care ETF, stocks of a certain market capitalization be it small, mid, or large-cap, foreign stocks included in the Vanguard Total International Stock Index Fund and bonds corporate and government of different durations and risk.

FYI: The best way I've found to invest is through M1 Finance. It's free and you even get an instant line of credit and 100$! Have a look here (link to M1 Finance).

Vanguard ETF Dividend Yields

ETFs dividend distributions are based on a 30-day SEC yield, a standardized yield measurement created by the Securities and Exchange Commission (SEC) to compare fund dividend returns. In simple terms the SEC yield is calculated based on the last 30-day period, it will tell us the income earned by the fund after deducting expenses.

In simple terms what the investor would earn in the next 12 months if the fund earned the same.

There’s over 60 Vanguard ETFs that pay dividends to investors, usually in the form of quarterly or annual distribution. Sometimes although quite uncommon, pay-outs happen on a monthly basis.

And as of February 2020 the 30-day SEC yield for Vanguard ETFs ranges between 0.08% and 4.97%, all depending on your investment strategy and risk tolerance.

TIP: Keep track of all your investments with Personal Capital. I use this amazing tool to aggregate all investments in one place and make sure I'm on track to financial freedom. Oh, and did I mention it's free? Try it out here (link to Empower Personal Capital).

Do Vanguard ETFs reinvest my dividends?

Fortunately yes, Vanguard does reinvest your dividends. It is done without commission thanks to their Brokerage Dividend Reinvestment Program. 

Vanguard will automatically reinvest them by buying stocks included in the ETF instead of offering them to you through pay-outs.

image 17
Vanguard’s accumulated returns assume all dividends have been reinvested

This is great news for investors because reinvesting it continuously grows their shares and compounds their dividends. Over the long, that’s what builds huge wealth, just like Albert Einstein once said “Compound interest is the 8th wonder of the world. He who understands it earns it; he who doesn’t pay it.” And if that’s the opinion of one of the brightest men humanity has ever been blessed with, well maybe we should believe it.

Although if you choose so, maybe because of an increase in risk in your portfolio or a need for cash, you can always opt-out of the program.

NOTE: The easiest way to add diversification to your portfolio is to invest in real estate through Fundrise. You can become private real estate investor without the burden of property management! Check it out here (link to Fundrise).

Are Vanguard ETFs dividends taxed?

But is there something you’re forgetting? Like I don’t know, taxes? Well, Uncle Sam may have something to say about that. So to avoid an unhappy taxman knocking at your door, we better answer the question. Yes, they are. But we have to make an important distinction. Dividends can be qualified or non-qualified, and they’ll be taxed accordingly.

Qualified dividends will receive special tax treatment. These include most payments from stocks of U.S. corporations as long as you own them long enough.

Foreign companies traded on the American Depositary Receipts (ADRs) or on the U.S. market are often also qualified.

But what qualifies in the eyes of the IRS as “long enough”? The answer is kind of tricky, but typically, you have to own it for more than 60 days during the 121-day period that began 60 days before the ex-dividend date. Sounds more complicated than it is, the ex-dividend date simply means the day the company decides you have to own the stock to receive the dividend.

So the same goes for Vanguard ETFs, the dividends are qualified if the fund has owned the stock for more than 60 days before the ex-dividend date. And you of course must invest in the fund when this criterion is still satisfied

If this is the case, your dividends will be taxed at 0%, 15%, or 20% tax rate, depending on your level of taxable income.

Dividends that do not satisfy these criteria are called “nonqualified” and are taxed at your income tax rate. You will of course be taxed a lot more, so be careful with your timing when you invest in a Vanguard ETF. It could make a big difference. Also hiring a tax advisor could prove of great help.

To report dividends to the IRS use a Form 1099-DIV.

ALSO: Small-cap equities can add a lot of upside to a portfolio while mitigating risks. Recently, I've discovered Mainvest's investment platform which makes it easy to invest in small and local businesses with returns of 10-25%. Take a look here (link to Mainvest).


Dividends are a great way to compound wealth. Vanguard offers a wide selection of ETFs that include them, over 60 in fact. Some are riskier and thought for the short term, some are safer and made for the long term. But always keep in mind your risk tolerance when choosing one, even with dividends, the risk can still be there.

If you prefer a more passive style of investing, going with a Vanguard fund can prove a great idea and build up a huge fortune. 

Current recommendations:

Over the past years, I have discovered several tools and products that have helped me tremendously on my path to financial freedom:

P.S.: The links below are affiliate links, which means I receive a small commission at no extra cost to you when you sign up for one of the services. Thank you for your support!

1)Personal Capital is simply the best tool out there to track your net worth and plan for financial freedom. Just their retirement planner alone has become an invaluable tool to keep myself on track financially. Try it out, it's free!

2) Take a look at M1 Finance, my favorite broker. I love how easy it is to invest and maintain my portfolio with them. I can set up automatic transfers, rebalance my portfolio with one click and even borrow up to 35% of my assets at super low interest rates!

3) Fundrise is by far the best way I've found to invest in Real Estate. You can diversify your portfolio by investing in their eREITs or even allocate capital to individual properties (without the hassle of managing tenants!).

4) Groundfloor is another great way to get exposure to the real estate sector by investing in short-term, high-yield real estate debt. Current returns are >10% and you can get started with just $10.

5) If you are interested in startup investing, check out Mainvest. I've started allocating a small amount of assets to invest in and support small businesses. Return targets are between 10-25% and you can start with just $100!

To see all of my most up-to-date recommendations, check out the Recommended Tools section.


Leave a Reply

Your email address will not be published. Required fields are marked *