Even though we've been through this before, the U.S. government shutdown can be an unsettling time. Swaths of federal employees are off the job -- or still working but not being paid -- and it's unclear how long the deadlock will last.
At the same time, it's scary for non-government workers, too. We rely on the government for Social Security checks, Medicare, Medicaid, veterans' benefits, and for much-needed services such as air traffic control.
People will still get their checks and veterans' benefits, but some services will be delayed. And travelers are already reporting delays and cancelled flights at airports.
Fortunately, the stock market has a history of holding its own during a government shutdown. Keeping your money in the market has traditionally been a smart move. And if you're worried about making sure you have a steady flow of income, a dividend exchange-traded fund (ETF) like the Vanguard Dividend Appreciation ETF (NYSEMKT: VIG) can be a good option.
About the Vanguard ETF
First, it's important to understand why the Vanguard Dividend Appreciation ETF includes the stocks it does. And to do that, you have to understand the principles of the underlying index, which is the Nasdaq US Dividend Achievers Select Index.
This index includes companies that are on the Nasdaq US Broad Dividend Achievers Index, with some important exceptions. First, it excludes the top 25% of companies in the index by dividend yield. That's to make sure the Nasdaq US Dividend Achievers Select Index doesn't have unstable companies with dividends that are artificially high because their businesses are unstable.
And second, the fund excludes all master limited partnerships and real estate investment trusts. Lastly, it only includes companies that have increased their dividend annually for at least 10 consecutive years.
The stocks left make up the Nasdaq US Dividend Achievers Select Index, and those names are skewed toward the technology, industrial, and financial sectors, which account for a collective 64% of the fund.
That's the index that the Vanguard ETF strives to duplicate, so you can find the same breakdown by stock and sector in it. The top 10 holdings are all blue chip names, with no stock having more than a 6% weighting.