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.
Stocks with steady dividend yields reassure investors of a company’s strong financial health. Additionally, dividend-paying stocks typically outperform those that do not pay over the long haul, with less volatility, due to the compounding effect of dividends on the investment’s overall return.
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.
“I see VYM as an option for investors who are looking to be invested in a major domestic index, but would like to be slightly more defensive than something like the S&P 500 (SPY). VYM also has the added benefit of a materially higher dividend yield. The current yield is at 2.97% which is on the low end of the fund from what I’ve seen,” according to a Seeking Alpha analysis of VYM.
VYM tracks the FTSE High Dividend Yield Index and excludes real estate stocks. The ETF charges just 0.08% per year, or $8 on a $10,000 investment, making it less expensive than 92% of competing funds, according to issuer data.
VYM holds nearly 430 stocks and is diverse at the sector level as five groups – consumer goods, technology, financial services, healthcare and industrials – receive double-digit weights. Although it is a highd dividend ETF, high-yielding sectors such as telcom and utilities combine for less than 13% of VYM’s weight. Earlier this year, Vanguard lowered the annual fee on VYM by one basis point.
“The low expense ratio is great for investors looking to get market exposure and not having to pay absurd expenses. VYM is a fund I’d be interested in having as part of my portfolio in the event of a market panic,” according to Seeking Alpha.
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