Vanguard High Dividend Yield ETF (NYSEARCA:VYM) is yet another Morningstar four-star rated exchange-traded fund from the great Vanguard fund family.
What makes this fund so compelling right now is, it’s relatively cheap and is a great fund for long-term investors, regardless of what the market is doing. There are certainly sexier ETFs or individual stocks out there but sexy doesn’t always keep your money growing.
The goal of this fund is to track the performance of the FTSE High Dividend Yield Index, which track 400 stocks that deliver above average dividend yields, not including real estate investment trusts (REITs).
However, in this case, high dividends doesn’t mean whopping 20% dividends. High dividends here is higher than the average payout of blue chip stocks with solid dividends, not the highest dividends in the marketplace.
For example, VYM’s current 12-month dividend payout is about 2.9% and the average dividend for the S&P 500 is 1.8%. This is a large cap value fund.
To that end, its top holdings read like a who’s who of the best Wall Street has to offer: Microsoft Corporation (NASDAQ:MSFT), Johnson & Johnson (NYSE:JNJ), Exxon Mobil Corporation (NYSE:XOM), JPMorgan Chase & Co. (NYSE:JPM) and Proctor & Gamble Co (NYSE:PG) are its top five holdings, with MSFT representing a nearly 6% stake.
VYM is a great pick for any long-term investor who is interested in holding a foundation of quality blue-chip stocks that deliver a reliable dividend. And the best part is, this fund is relatively cheap here because most investors are still looking to get in on the growth stock rally.
Now that the Federal Reserve has announced that it’s going to start unwinding the $4-plus trillion in mortgage back securities it has piled up over the past eight years during quantitative easing, money is moving back into bonds with the expectation that yields will be rising soon. Income is getting some respect on Wall Street again.
What’s more, as the global recession turns a corner to recovery, many central banks will look to start getting a tighter rein on their currencies. Since we’ve never been down this road before, unwinding this easy money policy may get bumpy. If it does, VYM is the kind of fund you want to have in your portfolio.
VYM isn’t built for speed or flash. It’s a durable, reliable and valuable investment that will be there for the long haul.
Plus, as is typical of most Vanguard funds, its 0.08% expense ratio is lower than 92% of the funds that hold similar portfolio. Cheap to buy and cheap to own — it doesn’t get much better than that.
Richard Band’s Profitable Investing advisory service helps retirement savers outperform the market without losing a minute of sleep along the way. His straightforward style and low-risk value approach has won seven Best Financial Advisory awards from the Newsletter and Electronic Publishers Foundation.