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Vanguard ETF Eyes High Yields

09/27/2017 5:00 am EST

Focus: ETFS

Jim Woods

Editor, Successful Investing and Intelligence Report

The Vanguard High Dividend Yield ETF (VYM) tracks the common stocks of companies that pay higher-than-average dividends, making it a viable exchange-traded fund pick for when market conditions are uncertain, says Jim Woods, editor of Successful ETF Investor.

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Two major factors are making dividends a popular investment focus right now. First, with bond yields at historic lows, many investors are turning to dividends as an alternate source of constant income.

Second, geopolitical tensions and frustration at the lack of progress on growth initiatives from the Trump administration continue to keep investors in a “wait and see” mentality.


VYM uses a conservative, diversified approach that seeks above-average yields without exposure to excessive risk. This is evident in the fund’s very low 0.01% spread. VYM has a massive $18.82 billion in total assets under management.

VYM screens and ranks companies based on the forecast of their dividends over the next 12 months, selecting only those which rank in the top half. The ones that make the cut are then weighted by market cap, rather than dividends. The fund excludes REITs because of unfavorable tax rules.

As dividend-paying stocks themselves offer some downside protection (since they tend to fare better during corrections and recessions than other equities), investors in VYM may be able to reduce their risk without having to sacrifice extra income in the process.

The fund has an expense ratio of 0.08%, which is 92% lower than the average expense ratio of funds with similar holdings. VYM offers a distribution yield of 2.91%.

Overall, the cheap holding cost, the robust liquidity and the excellent tracking makes VYM a decent choice for investors seeking high dividend equity exposure.

The fund’s top five holdings are Microsoft (MSFT), Johnson & Johnson (JNJ), ExxonMobil (XOM), JPMorgan Chase (JPM) and Wells Fargo (WFC), 2.6%.

As a well-diversified fund, VYM holds more than 400 stocks and is about equally invested in technology, consumer goods, financials, health care and industrials.

For those seeking stable high dividend payouts for at least the next year, the Vanguard High Dividend Yield ETF may be worth a look.

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