In a time when the high flyers and meme stocks are attracting the lion’s share of the attention, it’s refreshing to discover a more income-oriented fund like the Vanguard High Dividend Yield ETF (NYSEARCA:VYM). With VYM stock, the objective is to grow your account over time, not get rich overnight.
You might be thinking that this exchange-traded fund (ETF) is ideal for retirement accounts. And indeed, there’s a lot of truth to that.
Yet, we shouldn’t pigeonhole VYM stock as just a retirement account holding. Really, it could offer stability and surprisingly strong price appreciation for investors of practically any age.
So, here’s an overview of a fund that offers instant portfolio diversification, along with a nice cash payout every few months.
A Closer Look at VYM Stock
If you’re expecting VYM stock to diverge sharply from a stock market index like the S&P 500, you might be disappointed.
This fund has a five-year monthly beta of 0.92. This means that it’s very closely correlated with the moves of the S&P 500.
Therefore, if you feel that the stock market is generally overpriced and due for a correction, then this might not be the ideal time for you to buy shares of VYM stock.
Like the S&P 500, this fund has posted strong gains since the stock market bottomed out in March of 2020.
More specifically, the ETF cost around $61 per share on March 23, 2020, and has broken above the $100 mark in recent weeks.
On April 9, 2021, VYM stock was trading around $102 per share. This doesn’t tell the full story, though, since these price points don’t express how much the long-term shareholders have collected in dividend payments throughout the years.
A Stock for Stockpiling
One of the simplest but most successful investment strategies is to pick out a fund that offers a solid dividend yield, stockpile some shares, and just leave them in your account.
Of course, this strategy will only work if the fund has a decent yield. The last time I checked, the S&P 500’s annual dividend yield was 1.43%.
That’s a benchmark against which we can compare VYM stock’s much greater annual dividend yield of 3.05%.
For the young folks out there, consider the positive impact of doubling the S&P 500’s annual dividend yield. Imagine doing that year after year, decade after decade, always re-investing your dividend payments.
Going forward, there’s no guarantee that the Vanguard High Dividend Yield ETF is going to maintain the dividend payouts at the current level. However, Vanguard has been reliable in paying out its dividends.
Hence, it’s highly probable that the fund will continue to put periodic cash payments into your account.
Diversify at a Low Cost
Nowadays, there are brokers that will let you buy and sell stocks and ETF’s at a very low cost.
That’s all fine and good, but there’s another cost that you might not have considered. I’m referring to the expense ratio, which is basically what the shareholders will pay to the fund managers.
The expense ratio is taken directly from the share price. So, you probably won’t even notice that it’s being deducted. Nevertheless, it’s important to keep this cost reasonably low, if possible.
Thankfully, the Vanguard High Dividend Yield ETF has an expense ratio of just 0.06%. Reportedly, the average expense ratio of similar funds is 0.99%.
This means that, compared to the category average, if you invested $10,000 over 10 years, you could save $1,200 just based on the ETF’s ultra-low expense ratio.
That’s a heck of a low price for immediate diversification. And with the Vanguard High Dividend Yield ETF, you’ll get exposure to generous dividend payers in the financial, consumer staples, health care, industrials, technology, telecommunications and other market sectors.
The Bottom Line
The advantages of the Vanguard High Dividend Yield ETF are numerous. For one thing, it’s dividend yield currently doubles that of the S&P 500.
It features a very low expense ratio. Moreover, the fund offers exposure to a broad variety of market sectors.
All in all, you’ll find that this ETF is appropriate for investors at practically any stage of life. So why not stockpile some shares, sit back and start collecting those cash payouts?
On the date of publication, David Moadel did not have (either directly or indirectly) any positions in the securities mentioned in this article.
David Moadel has provided compelling content – and crossed the occasional line – on behalf of Crush the Street, Market Realist, TalkMarkets, Finom Group, Benzinga, and (of course) InvestorPlace.com. He also serves as the chief analyst and market researcher for Portfolio Wealth Global and hosts the popular financial YouTube channel Looking at the Markets.