Is VTI the Best Index Fund? (VTI, SPY)

Vanguard's total stock market fund has just updated its dividends. How does it rate against the competition?

The Vanguard Total Stock Market ETF (VTI) announced a 54.2 cent dividend, giving the fund a yield of 1.86 percent at its current value. That compares with a 1.79 percent yield for the Vanguard Small-Cap Value ETF (VBR), a 0.95 percent yield for the Vanguard Small-Cap Growth ETF (VBK), and a 1.29 percent yield for the Vanguard Extended Market ETF (VXF), which also announced their distributions at the same time.

The SPDR S&P 500 ETF (SPY) is a slightly better yielding alternative, offering a 2.38 percent yield according to its last distribution of $1.033 per share.

While investors get a lower dividend with VTI now, over the long term this fund has offered greater income growth versus SPY. Vanguard has hiked its dividend 287 percent since its IPO in the middle of 2001, versus a 198 percent gain for SPY's dividend over the same time period. VTI has also been a winner versus SPY over the same period despite its lower payouts. Compounding returns from price gains and dividends, VTI offered a 181.2 percent return over the same time period versus 145.9 percent for SPY over the same period. That outperformance can also be seen by looking at price returns. Vanguard's price rose 110.3 percent versus 80.5 percent for SPY from the middle of 2001 to today.

VTI also offers a lower fee structure than SPY, which appeals to passive index investors looking to lower investment costs. VTI's annual fees were cut in 2013 to 0.05 percent, one of the lowest fees in the industry. SPY, on the other hand, has a fee of 0.10 percent, or double the fees of VTI.

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