Why Investors Still Love This Vanguard Dividend ETF

Although there is speculation that the Federal Reserve could raise interest rates next month, no rate hikes have come to pass this year and even one arrives in June, it is unlikely to be punitive for higher-yielding assets because U.S. borrowing costs are still near historic lows.

The Fed’s lower for long interest rate policy been a boon for dividend ETFs, particularly those emphasizing high dividend strategies. There are some venerable options in this space that are not as high yield as their names imply, which can help these funds remain durable regardless of what the Fed is doing.

Related: Low U.S. Interest Rates Boost International Dividend ETFs

The Vanguard High Dividend Yield ETF (NYSEArca: VYM) has been solid during some trying times for dividend stocks and ETFs. VYM is one of the four largest U.S. dividend ETFs and one of the least expensive as well.

It can be said that VYM belies its high-yield implication because the ETF’s exposure to the sectors investors view as yield destinations is relatively light. Staples, utilities and telecom combine for nearly a quarter of the ETF’s weight with over half that coming from staples names. That is to say that with its relatively light combined allocation to the telecom and utilities sectors, VYM is not as sensitive to rising interest rates as some utilities-heavy dividend ETFs are.


“One particular quirk of the weighting method for VYM is its focus on future dividend forecasts. Most high-dividend funds select stocks based on prior dividend history instead. This gives VYM a stronger technology tilt than most of its competitors. VYM’s distribution yield is 3.14%.” according to Investopedia.