With the CBOE Volatility Index up close to 65% for the year, investors have had more than their fair share of market fluctuations in the second half of this year. One way to ease the pain of the volatility is to get yields that can outpace inflation.
“Money has to be put to work. So, if you’re going to do it, value and dividends are a good way,” said Andrew McOrmond, managing director at WallachBeth Capital, in a CNBC report.
Despite the market volatility and uncertainty, dividends have not taken a dive but have remained rather steady. As such, more investors are giving dividend funds a closer look, especially those with stock holdings that have a consistent track record of dividends.
“Profitability has been paramount in this type of market cycle,” said Matt Bartolini, head of SPDR Americas Research at State Street Global Advisors. “We’ve seen profitable stocks outperform unprofitable stocks for 12 consecutive months. And stocks that pay a consistent amount of dividends, they’re generally profitable because they are not going to pay out if they are unprofitable.”
Outrun Inflation With VYM
With a 2.72% 30-day SEC yield, as of May 31, one fund to consider to get the aforementioned value and dividends is the Vanguard High Dividend Yield Index Fund ETF Shares (VYM). The fund comes with a low expense ratio of 0.06%.
Dividends are an alternate route to riskier high yield debt with ETFs like VYM. Moreover, the emphasis on VYM is large-cap value holdings, which helps to minimize credit risk.
The fund employs an indexing investment approach designed to track the performance of the FTSE High Dividend Yield Index, which consists of common stocks of companies that pay dividends that generally are higher than average. The advisor attempts to replicate the target index by investing all, or substantially all, of their assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.
In summary, VYM:
- Seeks to track the performance of the FTSE® High Dividend Yield Index, which measures the investment return of common stocks of companies characterized by high dividend yields.
- Provides a convenient way to track the performance of stocks that are forecasted to have above-average dividend yields.
- Follows a passively managed, full-replication approach.
For more news, information, and strategy, visit the Fixed Income Channel.