A Popular Dividend ETF Looks Appealing

The Vanguard High Dividend Yield ETF (NYSEArca: VYM) is one of the four largest U.S. dividend ETFs and one of the least expensive as well. Those are appealing traits, but the venerable ETF could be prepared to deliver more upside for income investors.

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.

Investors may also consider consistent dividend growers as a way to gain exposure to this group of quality companies as dividend growers and high quality stocks share a number of similar characteristics.

VYM “ranks dividend paying stocks by yield (REITs are excluded) and then fills the portfolio until the cumulative market cap of the fund reaches 50% of total available market cap. Since it’s market cap-weighted, the fund ends up primarily being invested in large- and mega-cap stocks. The fund’s current yield of 3.1% easily tops the 1.9% yield of the S&P 500 and the 2.3% rate on the 10-year Treasury note,” according to Seeking Alpha.