The Vanguard High Dividend Yield ETF (NYSEARCA:VYM) started as an open-end fund: the Vanguard Dividend Growth Fund. But that fund has closed due to its increasing popularity. This isn’t unusual in the fund world, since fund managers can’t put unlimited amounts of capital to work if they plan on being effective at their strategy.
In this case, the fund was experiencing massive amount of cash inflows as institutional players as well as investors around the globe started honing in on U.S. dividend stocks.
Vanguard, which is not only famous for its quality products, but its low expenses, was already running two similar exchange-traded funds to the fund. VYM is one of them.
VYM is up nearly 45% since it launched in 2006, with returns dipping in 2008 as the financial crisis hit, but afterwards continuing a consistent, uphill growth path. From low to high over its history, the stock is up 200% from 2008 lows. The point is, VYM is a solid ETF that has kept pace with the S&P 500 and Dow Jones Industrial Average as long as it has been around.
VYM Is Loaded With Dividend Stocks
And while its name would make you think that it’s holding on to surviving energy partnerships and big oil companies with huge dividends, it is actually focused on some of the top names in the world.
Among its 422 holdings are names like Microsoft Corporation (NASDAQ: MSFT), Johnson & Johnson (NYSE: JNJ) and Nike Inc (NYSE: NKE).
VYM has a collection of some the most consistent dividend payers on the planet. And it has proven itself during one of the most difficult markets in modern history. And just to clarify its overly aggressive sounding name, its dividend yield is a hair under 3%.
This is one of the safest dividends around, so it provides an answer to the classic dilemma between buying a solid company with a slightly better dividend that will suffer the vagaries of the market, or holding a number of great stocks and getting a stable, inflation beating dividend regardless of market conditions.
What’s more, VYM doesn’t have to be your only dividend holding. You can also own some companies that it doesn’t hold to diversify and bump up that dividend. But you will be secure in the knowledge that VYM is there as a hedge against volatility.
As the market sits in its current trading range, this is a good time to look for some solid income to keep the money rolling in while stocks take a breather.
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.
