At any given time, several stocks stand out as good buys, but deciding which companies to invest in and how much to allocate toward each stock can be challenging.
Exchange-traded funds (ETFs) relieve this pressure by diversifying assets across dozens, hundreds, or even thousands of stocks. The Vanguard Value ETF (VTV 1.27%) has a low expense ratio of just 0.04%, or 4 cents for every $100 invested, making it an excellent way to gain exposure to over 300 value stocks.
Broadcom (AVGO 2.91%), Procter & Gamble (PG 0.74%), and PepsiCo (PEP 0.51%) are among the top holdings in the fund. Here’s what makes each company a good buy now and why the ETF is a simple yet effective way to gain exposure to these companies and many more.
Broadcom: A Chip Stock with a Growing Dividend
Despite posting excellent second-quarter fiscal 2024 results in June and issuing a 10-for-1 stock split on July 15, Broadcom has since pulled back and is down around 15% from its all-time high. However, the stock price has increased severalfold in recent years and may still be worth buying now.
Like many semiconductor companies, Broadcom benefits from increased demand for artificial intelligence (AI) chips and mega-scale data centers. The company makes custom accelerators, networking devices, switches, and various hardware components essential for data centers and global connectivity, even though it doesn’t make graphics processing units like Nvidia.
Broadcom’s diversified business model positions it better for a cyclical downturn in the industry compared to pure-play chip stocks, which can be more volatile. The company also has a reasonable valuation with a forward price-to-earnings (P/E) ratio of 30.2 and a dividend yield of 1.5%.
Broadcom began paying a dividend in fiscal 2011 and has raised it every year since, including a 14% increase announced in December. Overall, Broadcom offers a value-oriented approach to investing in the chip and AI sectors.
Procter & Gamble: A Strong Capital Return Program
Procter & Gamble saw its stock drop by as much as 7% recently after reporting its fourth-quarter and full-year 2024 results. The consumer staples company reported a mere 2% increase in both sales and diluted earnings per share (EPS) by generally accepted accounting principles (GAAP). Organic sales were up 4%, but shipment volumes were flat.
Volumes have been the biggest headwind for P&G. Over the last few years, the company has demonstrated pricing power despite stagnating volumes. However, fiscal 2024 results indicate that price increases have limits as cost-conscious consumers push back.
Management’s fiscal 2025 guidance suggests that the company is confident it can grow faster, but it is still below the level of sales growth investors might expect in the longer term. Full-year organic growth is expected to be 3% to 5%, with diluted EPS growing 10% to 12%.
Despite the slow growth, P&G forecasts $10 billion in dividend payments and plans to repurchase $6 billion to $7 billion in stock. The company is a Dividend King with 68 consecutive years of payout increases and has reduced its outstanding share count by 12.8% over the last 10 years.
While its growth may be disappointing for now, Procter & Gamble remains one of the safest dividend stocks on the market. With a P/E just under 27, it isn’t cheap, but its quality is worth the price.
PepsiCo: A Model of Dividend Safety
Despite moderate growth and dividend increases, PepsiCo’s stock price is roughly the same today as it was three years ago. Growth has slowed as the company deals with a selective consumer, but Pepsi has the makings of a near-perfect dividend stock to buy and hold for the long term.
PepsiCo is incredibly diversified, with over 600 food products and over 600 beverages, including notable brands such as Pepsi, Gatorade, Quaker, Lay’s, Cheetos, Mountain Dew, Doritos, Rockstar Energy, Pure Leaf tea, Pasta Roni, Rice-A-Roni, Jack Link’s, and more.
This diversity allows it to tap into various markets in food and beverages. The company’s global reach and variety of brands enable it to identify successful products in different markets and adjust its marketing and distribution strategy accordingly.
In the last 20 years, PepsiCo has tripled its revenue while maintaining a low- to high-teens operating margin. The business is steady and recession-resistant, with no cyclicality, allowing Pepsi to accurately forecast results, aiding in capital allocation and dividend planning.
Pepsi’s payout has more than doubled over the last decade and currently yields 3.1%. Like P&G, PepsiCo is a Dividend King with over 50 consecutive years of dividend increases. With a P/E of 25.1, it offers a nice blend of income and value, making it an excellent choice for risk-averse investors focused on generating passive income.
Casting a Wide Net
The Vanguard Value ETF is a low-cost way to invest in value stocks across various market sectors. While Broadcom is the largest holding at 3.6%, the fund is not concentrated in only its top holdings. The ETF includes 1.9% in P&G and 1.1% in Pepsi, along with many of their peers.
For example, the consumer staples sector makes up 9.2% of the fund, including stocks like P&G, PepsiCo, Coca-Cola, Walmart, and more. The fund also has significant holdings in financials, healthcare, and industrials.
Overall, the Vanguard Value ETF is an ultra-low-cost way to invest in top value stocks and enhance your passive income stream.
