While some high dividend strategies are lagging the broader market due to rising interest rates and investors’ preference more cyclical sectors, the Vanguard High Dividend Yield ETF (NYSEArca: VYM) remains a popular destination for income investors. VYM is one of the four largest U.S. dividend ETFs and one of the least expensive as well.
With stocks near record highs and some valuations stretched, investors should consider high-quality stock exposure, such as exchange traded funds that track dividend growers, as a way to limit risks while participating in any upside potential.
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’s “strategy basically targets stocks that represent the higher-yielding half of all U.S. dividend-payers, and then it weights its holdings based on market capitalization,” according to Morningstar. “What that does is it tends to skew the portfolio toward the most mature names in the market. These tend to have durable competitive advantages, and it has a bit less exposure to the more distressed, highest-yielding names in the market.”
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