One of VIG’s most misunderstood rules is that it explicitly excludes the top 25% of eligible dividend-paying stocks by yield. This is not arbitrary; it is a deliberate quality screen designed to avoid companies where an elevated dividend yield signals financial distress, a pending dividend cut, or unsustainable payout ratios. For example, a utility or real estate investment trust (REIT) with an 8% yield might look attractive to an income investor, but VIG’s index methodology will reject it because high yields in the top quartile are often correlated with declining stock prices and shrinking earnings. Instead, VIG targets companies with modest but growing yields—typically in the 1.5% to 3.5% range—that have demonstrated the financial discipline to raise dividends through multiple economic cycles. This filter explains why VIG’s overall trailing yield is only 1.23%, which is significantly lower than high-yield competitors like SCHD (3.5%) or VYM (2.9%), but it also means the fund is far less likely to suffer from dividend cuts during recessions, making it a more reliable compounding vehicle for long-term retirement portfolios.

To even be considered for inclusion in VIG’s portfolio, a company must have increased its regular cash dividend for at least 10 consecutive years. This is a backward-looking quality measure that separates true dividend achievers from temporary high-payers. As of the March 2026 reconstitution, the average holding had a dividend growth streak of over 20 years, with legacy names like Johnson & Johnson (JNJ) boasting more than 60 consecutive years of increases and Procter & Gamble (PG) exceeding 130 years. However, this rule also creates a notable blind spot: it excludes fast-growing companies that have only recently started paying dividends. For example, Meta Platforms (META) and Alphabet (GOOGL) did not begin paying dividends until 2024 and 2025, respectively, which means they are excluded from VIG despite their immense size and growth potential. This backward-looking nature makes VIG a highly conservative, quality-focused fund, but it also means the portfolio is structurally tilted toward mature, cash-rich mega-caps that have already achieved market dominance—often at the expense of newer, more disruptive growth stories.

Broadcom’s ascent to the top position at 5.39%—overtaking Apple and Microsoft—is a direct result of its explosive dividend growth trajectory. Since 2018, Broadcom has increased its quarterly dividend from $1.75 per share to $5.25 per share as of 2025, representing a compound annual growth rate of over 15%. This rapid acceleration, combined with a massive stock price rally driven by its AI-adjacent semiconductor business, has pushed its market capitalization and dividend yield into a sweet spot that VIG’s index weights heavily. Importantly, Broadcom’s 5.39% weight is not a function of its dividend yield (which sits at approximately 1.6%), but rather its total market capitalization relative to other dividend achievers. Because VIG uses a market-cap-weighted approach, the fund automatically increases exposure to companies whose stock prices rise fastest—a dynamic that has helped VIG outperform traditional high-yield dividend funds during bull markets. However, this also means that if Broadcom’s dividend growth slows or its stock price corrects, its weighting will naturally decline in subsequent reconstitutions, making VIG a self-correcting portfolio that responds to both dividend policy and market valuation.

VIG’s index reconstitutes annually in March, with changes becoming effective after the close of trading on the third Friday of March. In the 2026 reconstitution, several significant shifts occurred: the index added new dividend achievers from the financial and healthcare sectors, while trimming positions in legacy consumer staples names that had underperformed on dividend growth metrics. Notably, positions in 3M (MMM) and AT&T (T) were reduced or removed entirely because their dividend growth streaks were broken or their payout ratios exceeded the index’s sustainability thresholds. Conversely, new entrants included several mid-cap healthcare names that have consistently raised dividends for over a decade but had previously been too small for inclusion. This annual reset ensures that VIG does not become static; it continually rotates out companies that have lost their dividend-growth momentum and rotates in companies that are accelerating. For investors, this means that the portfolio you see in June 2026 is already subtly different from the March 2025 version, and understanding these changes is critical for assessing whether VIG remains aligned with your long-term income and growth objectives.