A Solid High Dividend ETF Play Thanks to Compounding Effect

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.