When investors think about investment giant Vanguard, the conversation is always about the firm’s low costs. And that is a big selling point, especially for its exchange-traded funds (ETFs). Low costs help you keep more of your investment working for you, rather than lining the pockets of your broker. But those low costs have another benefit as well.
And that’s providing a high yield for income seekers.
An ETF’s distribution yield is directly tied to expenses. So if you’re looking for a high yield, low expenses are one way to find it. And with some of the lowest expense ratios on the planet, many Vanguard ETFs score some of the highest yields for their respective fund categories. It really is a win-win for investors.
With that in mind, here are three high yield Vanguard ETFs to get your income fix.
High-Yield Vanguard ETFs to Buy: Vanguard High Dividend Yield ETF (VYM)
Dividend Yield: 3.07%
Expense Ratio: 0.08%, or $8 annually per $10,000 invested
The obvious take: Investors looking for high yields should look for a Vanguard ETF with “high yield” in the name. Well, the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) does deliver on that front. But VYM is also a really great ETF to own.
The $25 billion fund tracks the FTSE High Dividend Yield Index. This is a measure of large and mid-cap stocks that pay above-average dividends relative to the broad market.
And while some “risky” high-yielding stocks like Frontier Communications Corp (NYSE:FTR) do make their way into the ETF’s holdings, the vast bulk of its 415 stocks are blue-chip stocks like Microsoft Corporation (NASDAQ:MSFT). This makes a prime core holding for investors looking for domestic stock exposure.
It also makes it a prime holding for investors looking for some decent equity income. With its low expenses of 0.08%, or $8 per $10,000 invested, and its focus on slightly better yielding stocks, VYM has a hefty dividend yield of 3.07%.
The ETF has performed pretty great over the years as well. For the last five years, ending March 31, VYM has managed to return 13.34% annually. That’s enough to turn $100,000 into more than $187,000, with a huge chunk of that return coming from dividends.
High-Yield Vanguard ETFs to Buy: Vanguard Utilities ETF (VPU)
Dividend Yield: 3.39%
Expense Ratio: 0.10%
Some sectors by nature pay more in dividends and have high yields. Case in point, utilities. Thanks to their fixed costs and generally stable demand, many utilities have the ability to hand over much of their cash flows back to investors. That results in yields in the 3% to 5% range.
The Vanguard Utilities ETF (NYSEARCA:VPU) offers the broadest collection of utility stocks compared to other ETFs covering the sector. This includes large-cap sector stalwarts like American Electric Power Company Inc (NYSE:AEP) as well as mid- and small-cap utilities. This inclusion of these smaller firms bumps VPU’s total holdings to 75.
It also helps on the returns front. These smaller stocks provide plenty growth that many other utilities ETFs are missing. Over the last five years, the Vanguard ETF has returned 12.21% annually.
But despite the inclusion of small-caps, VPU’s holdings still churn out plenty of cash flows. These are steady utilities after all. With that, VPU yields an impressive 3.39%.
High-Yield Vanguard ETFs to Buy: Vanguard Intermediate Tm Cpte Bd ETF (VCIT)
Dividend Yield: 3.38%
Expense Ratio: 0.07%
For those seeking a high yield, you can go wrong with the classics. Bonds are still one of the best places to get your income fix. And Vanguard Intermediate Tm Cpte Bd ETF (NASDAQ:VCIT) could be one of the best Vanguard ETFs covering the asset class.
VCIT covers corporate bonds with maturities of 5 to 10 years. These intermediate bonds are considered the sweet spot for portfolios. That’s because they allow for additional yield, because they are further out on the yield curve.
However, they aren’t so far out there that they will implode from rising rates. On the whole, intermediate bonds have less sensitivity to rising rates. That’s evident by the fact that VCIT’s nearly 1840 holdings have a duration of around 6. This will limit the damage as the Federal Reserve slowly ratchets up benchmark rates.
As for yield, the focus on slightly longer maturities does provide extra “oomph.” As does the focus on corporate bonds. The added risk and maturities gives VCIT a current yield of 3.38%. But with its vast number of holdings, default risk is pretty minimal. The focus on investment-grade bonds doesn’t hurt either.
All in all, when you add in VCIT’s low expenses ratio of 0.07%, you have one of the best bond ETFs around.
As of this writing, Aaron Levitt did not hold a position in any of the aforementioned securities.