Why Vanguard’s VYM Is My Go-To Dividend ETF This Year

The Vanguard High Dividend Yield Index Fund ETF (NYSEARCA:VYM | VYM Price Prediction) is one of the many dividend ETFs you can choose. However, there are a few characteristics that set it apart. The fund is the most desirable for dividend growth investors who don’t want to retire yet but also want cash flow.

It has a respectable yield while delivering results that are comparable to the S&P 500. The fund is also reliable during market downturns. For instance, it only lost about 3% of its value in 2022, a period of interest rate hikes and high inflation. The Nasdaq Composite lost 33% of its value during the same year, highlighting the gap between these two funds during economic downturns.

These are some of the reasons why VYM is a compelling dividend ETF for long-term investors.

The Yield And Returns Are Solid

Many dividend investors start their analyses by looking at a stock’s yield. VYM delivers a 2.57% SEC yield and only has a 0.06% expense ratio. That means you get to keep almost all of the cash flow and returns that the fund generates, and there have been plenty of returns.

VYM has an annualized 10.4% return over the past five years and an annualized 12.4% return over the past decade. Annualized double-digit returns are good for any fund, but those results are harder to find for a dividend ETF with a respectable yield.

VYM helps investors who are still 10-30 years removed from retirement, but it is important to assess your financial situation before making any investment. The yield and annualized returns make it a competitive choice in the industry.

The Fund Has A Mix Of Growth And Value Stocks

VYM’s rare mix of growth and value stocks explains why it can offer respectable yields and returns. For instance, its largest holding is Broadcom (NASDAQ:AVGO), which has a low yield but tremendous returns. Broadcom has enjoyed more than 700% in gains over the past five years as artificial intelligence propels the chipmaker to new highs. 

VYM also has a bunch of banks and consumer staples companies in its top 10 holdings. Eight of the fund’s top 10 holdings are up by more than 10% over the past year, and all of those assets make up 25% of the fund’s total holdings. 

Financial services make up 21.2% of the fund’s total assets. It’s no surprise this sector makes an outsized percentage of total assets since many bank stocks offer high yields and decent growth prospects. Tech, consumer staples, healthcare, and industrials are the other four categories that make up more than 10% of the fund’s assets.

The Fund Is Filled With Large-Cap Stocks

Large-cap stocks and dividend investors often make for a great mix. These equities require more trading volume to generate price movements, which makes them less volatile than the rest of the market. Volatility decreases even further for mature, high-yield stocks, which are abundant in VYM.

The average market cap among VYM’s holdings is $114.85 billion. It also has almost 70% of its capital committed to large-cap stocks. Mid-cap stocks take up an additional 24% of the portfolio, leaving very little room for small-cap stocks. The fund only has eight growth stocks, with the remaining holdings being strictly value or a blend of value and growth.