This Vanguard Fund Is Still Very Good, but No Longer Elite

Key Morningstar Metrics for Vanguard Dividend Growth

• Morningstar Medalist Rating
  : Silver
• Process Pillar
  : Above Average
• People Pillar
  : Above Average
• Parent Pillar
  : High

Vanguard Dividend Growth VDIGX has recently struggled enough to drive a downgrade of its Process rating to Above Average from High; its People rating remains Above Average.

Over most of its long life, this strategy regularly lagged mildly in rising markets and held up well in market slumps. Its attractive asymmetrical return pattern was intact in December 2022; against the broad Russell 1000 Index, its three-year upside-capture ratio (which measures how a strategy tracks an index in positive return months) was 89%, and its downside-capture ratio (measuring negative months) was 81%. But beginning in January 2023, its fortunes fell sharply, so that by December 2025 its three-year upside-capture ratio was just 56% and its downside-capture ratio was 93%.

During this period, subadvisor Wellington Management’s dividend-growth team experienced substantial change, but it began after the strategy’s behavior shift. Longtime lead portfolio manager Don Kilbride announced his retirement in early 2023—driving a downgrade of the People rating to Above Average from High—but he remained in charge until the beginning of 2024. He then handed the reins to current portfolio manager Peter Fisher but remained an active team member before retiring at the end of 2025. In early 2025, Fisher made a key change to the team. He added Tim Casaletto, previously a global infrastructure portfolio manager at Wellington, to replace dedicated analyst Ashley Carew, a forensic accountant. Fisher wanted a broader perspective to enable swifter decisions on stocks when opportunities appeared, especially in downturns. This change was a sensible, positive one.

Fisher hasn’t altered the process that’s stood for two decades. He still aims to find strong firms with profits durable enough to increase their dividends but with enough issues to drive low stock prices. To expand a dividend consistently, the reasoning goes, a company must be doing the big things right. That straightforward thesis remains convincingly rational. He does want swifter analysis and changes during disruptions, but that’s to restore the approach to its previous tempo.

Over these past three difficult years for the approach, the US large-cap market environment has been unusual. It became highly concentrated and narrow, with massive rallies and brief, sharp downturns. Fisher’s steadiness at the helm should help this strategy in the long run, but the recent struggles somewhat weaken our conviction in the strategy.

Vanguard Dividend Growth: Performance Highlights

The investor shares of Vanguard Dividend Growth fell to the bottom decile of the large-blend Morningstar Category in 2023, 2024, and 2025, badly lagging the broad Russell 1000 Index each year. As a result, as of Feb. 28, 2026, the fund’s one-, three-, five-, and 10-year returns materially trailed the Russell 1000 Index, the S&P U.S. Dividend Growers Index prospectus benchmark, and the category norm. The degree of underperformance has been surprising: This strategy had never before trailed the median large-blend peer for three calendar years in a row.

The strategy’s risk/reward profile has also changed lately. From March 31, 2009, through the end of 2022, its average three-year rolling upside-capture ratio was 94% against the S&P U.S. Dividend Growers Index; in the period ended December 2025, however, it was just 76%. And its average three-year downside-capture ratio from early 2009 through the end of 2022 was 88%; at the end of 2025, it was 104%.

A few decisions within a compact portfolio can make big impacts in a narrow, volatile market. Here, a meaningful underweighting in technology and an overweighting in consumer fare versus its S&P U.S. Dividend Growers Index hurt. Within those sectors, delayed additions to strong performers Walmart WMT and Broadcom AVGO, as well as overweightings to poor performers Accenture ACN and Texas Instruments TXN, were especially harmful.

Again, the past few years have been unusual, so it would be no surprise if the fund returned to form.