Passive investors seeking yield in an exchange traded fund (ETF) have come to the right place. In this article, I’m going to discuss why I think the Vanguard High Dividend Yield ETF (NASDAQ:VYM) is a great choice for investors right now.
As most already know, dividend yields have become depressed across the board, due in large part to bond yields which are near historic lows right now (though they have been rising in recent months). As such, investors are increasingly reaching for yield. Higher-yield dividend options have become more appealing, in accordance with this view.
What the Vanguard High Dividend Yield ETF does is it seeks out high-dividend paying companies outside of the U.S. Thus, this ETF is great from a diversification standpoint, particularly for investors with too much exposure to American or North American markets. The ETF then takes the highest-yielding companies (top 50% of all stocks outside of U.S.) and weights the portfolio by these companies’ respective market capitalizations.
What this weighting methodology does is limit investors’ risk with respect to these above-average yields. As many investors already know, companies with higher than industry average dividend yields tend to be higher-risk.
There’s usually risks related to a dividend cut built into such stocks, or investors see a slower growth trajectory on the horizon. In either case, these are not stocks the market is generally bullish on. That said, by buying the larger companies in a heavier way, investors get better risk-adjusted returns with such an ETF.
Invest wisely, my friends.
