Dividend Yield: Value vs. Growth

John Bogle, in various writings, argued that his decision to create value and growth index funds was based on meeting the tax, risk, and return needs of investment clienteles during their investment life cycles. Growth index funds were designed for younger investors who “focused on wealth accumulation, were seeking tax-efficiency, and were willing to assume risks.” Value index funds were designed for older investors who “focused on wealth preservation, were seeking higher income, and were happy to reduce their risks.” ¹


The charts below trace the historical annual income distributions from Vanguard’s large cap, mid cap, and small cap value and growth index funds. As can be seen, value index funds have consistently distributed higher dividend yields than growth index funds. Thus, the historical record confirms Bogle’s premise that investors seeking yield would have been rewarded for choosing value index funds.

Value vs. Growth


Bogle’s advice on the relative tax advantages of growth index funds is, for the most part, validated in the historical record. Although all of the growth and value funds have historically distributed very few capital gains distributions, the difference in yield distributions tends to favor growth index funds, especially for investors in higher tax brackets and who are subject to state taxation as well as federal taxation. The tables below provide the average dividend yield; the average qualifying dividend percentage (QD %);  the average qualifying dividend (QD); and the average non-qualifying dividend (NQD) for the measuring periodl

Table. Large Cap ²

Averages Large Value Large Growth
Period 1993-2018 1993-2018
Ave div 2.44% 1.29%
Ave. QD % 100.00% 98.21%
Ave QD 2.44% 1.27%
Ave NQD 0.00% 0.02%

Table. Mid Cap ²

Averages Mid Value Mid Growth
Period 2000-2008 2000-2008
Ave div 1.96% 0.55%
Ave. QD % 97.43% 90.63%
Ave QD 1.91% 0.50%
Ave NQD 0.05% 0.05%

Table. Small Cap ²

Averages Small Value Small Growth
Period 1998-2018 1998-2018
Ave div 1.80% 0.48%
Ave. QD % 71.80% 74.14%
Ave QD 1.29% 0.36%
Ave NQD 0.51% 0.12%

Return and risk

Historical return and risk (as approximated by standard deviation)  differentials between Vanguard growth and value index funds have not been very pronounced.

Table Large Cap ³

Returns Large Value Large Growth
Period 1993-2018 1993-2018
CAGR 9.02% 9.03%
Std dev 16.75% 20.39%

Table Mid Cap ³

Returns Mid Value Mid Growth
Period 2000-2008 2000-2008
CAGR 6.44% 6.98%
Std dev 22.82% 21.76%

Table Small Cap ³

Returns Small Value Small Growth
Period 1998-2018 1998-2018
CAGR 8.45% 8.54%
Std dev 18.27% 19.95%


¹ John Bogle, The Little Book of Common Sense Investing (2007), John Wiley and Sons, pp.133-134.

² Data source: Google drive spreadsheet

³ Data source: Vanguard fund statistics, tracking error

Posted in Indexing, Market statistics, Mutual funds, Taxes, Vanguard
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