Vanguard's New Dividend ETF Takes an 'Exclusionary' Approach (VIG, PFM, FDL)

Vanguard Dividend Appreciation Index Fund VIPERs (VIG) are now trading on the AMEX. Mergent just put up on their website a section about the Dividend Achievers Select Index. The "select" index has somewhat fewer companies in it -- 212 vs 317 -- and seems to have more a value tilt than the Broad Dividend Achievers Index of the Powershares Dividend Achievers Portfolio (PFM).

The select index excludes REITs, which means that all of its dividends will be "Qualified Dividends" taxed at 15%. If you compare the components for the indexes, there is a noticeable void. Many of the companies which pay out most of the total stock market's available dividends are not in the select index.

It seems that the Dividend Achievers Select Index includes a screen against high payout ratios. Many classic high dividend payers like Citigroup (C), Bank of America (BAC), Altria (MO), Verizon (VZ), and J.P. Morgan (JPM) are not in the select index. Most of the top players in First Trust Morningstar Dividend Leaders Index Fund (FDL) are not in (VIG) because they pay out too much of their income as dividends.

I look forward to seeing how the exclusion (VIG), inclusion (PFM), or severe overweighting (FDL) of major dividend payers will affect the performance of Dividend ETFs.