Investing in Vanguard's High Dividend Yield ETF (VYM) Explained
The Vanguard High Dividend Yield ETF (VYM) is a widely-diverse exchange-traded fund (ETF) looked after by The Vanguard Group, a prominent asset management firm owned by its fund investors. As of late 2024, this dividend ETF boasted approximately $73 billion in total net assets.
ETF Exploration
An exchange-traded fund (ETF) permits investors to purchase multiple stocks or bonds simultaneously. The fund's distribution across various sectors and exposure to popular income-producing stocks have earned it favor among many dividend investors. This guide will instruct you on everything you need to know about the Vanguard High Dividend Yield ETF, and how to invest in ETFs for beginners.
What is it?
What is the Vanguard High Dividend Yield ETF?
The Vanguard Group, which supervises the Vanguard High Dividend Yield ETF, is among the most prominent and well-known ETF providers. Most ETFs aim to mirror the performance of a specific index. However, the Vanguard High Dividend Yield ETF follows the FTSE High Dividend Yield Index, which aims to measure the investment returns of common stocks of companies with high dividend yields.
The Vanguard High Dividend Yield ETF employs a passively managed, full-replication strategy. This means the ETF consists of all the securities held by the FTSE High Dividend Yield Index and at the same proportions. The ETF focuses primarily on large-cap equities with above-average dividend yields.
The ETF contains stocks with the highest dividend yields, and it mirrors the index it tracks by excluding real estate investment trusts (REITs) from its investment mix. REIT distributions are not considered qualified dividends. Instead, they are typically taxed as ordinary income. By excluding REITs from the fund, the Vanguard High Dividend Yield ETF concentrates on investments that benefit from lower qualified dividend tax rates.
How to Buy
How to Buy the Vanguard High Dividend Yield ETF
Purchasing the Vanguard High Dividend Yield ETF is straightforward. You can buy shares directly from Vanguard or through your existing brokerage account. Here's a step-by-step guide to purchasing shares of this ETF.
Step 1: Open your Brokerage App
Log in to your brokerage account where you manage your investments. If you don't already have an account through your regular brokerage or Vanguard, you'll need to open one to buy shares of this ETF. Opening a brokerage account with any firm typically takes only a few minutes.
Take time to research to find the best broker for your investment needs. Look for perks and features that best suit your investment objectives, such as low trading fees, no account minimums, a wide range of investment options, and helpful research and analysis tools.
Step 2: Search for the ETF
Market Price
Next, enter the stock ticker VYM into the search bar. You can also input the Vanguard High Dividend Yield ETF's name into the search bar to pull up the ETF's trading page.
Step 3: Decide how many shares to buy
31.15%
Consider your investment goals and how much of your portfolio you want to allocate to this ETF. Building a well-diversified portfolio that represents various sectors and stocks can help increase your returns over time. Allocate cash only to investments you plan to hold for at least five years, preferably longer.
One of the many advantages of the Vanguard High Dividend Yield ETF is that it provides instant diversification. Once you invest in this ETF, you'll become a partial owner of the hundreds of companies it includes. Some investors prefer putting cash only into funds like ETFs, while others like to diversify across both individual stocks and funds.
8.95%
Step 4: Select the order type
Now that you have the ETF displayed on your brokerage account screen, choose between a market order or a limit order. With a market order, you can execute the order immediately at the current trade price.
10.78%
With a limit order, you specify a maximum price you're willing to pay. If the ETF fails to hit this price point, your order won't execute and may expire after a given period. Generally, placing a market order is recommended so your transaction is finalized without delay.
Step 5: Submit your order
9.89%
Once you've confirmed the number of shares you want to buy or the amount you want to invest, double-check the details one more time. Then, submit your buy order to invest in the Vanguard High Dividend Yield ETF.
Step 6: Review your purchase
Check your portfolio to ensure your order was filled as expected and adjust your investment strategy accordingly. If you selected a market order, the transaction should be completed instantly at the prevailing share price.
- Broadcom (AVGO) (-1.39%): 4.38% contribution
- JPMorgan Chase (JPM) (-0.82%): 3.61% contribution
- Exxon Mobil (XOM) (-0.09%): 2.97% contribution
- Home Depot (HD) (-1.65%): 2.21% contribution
- Procter & Gamble (PG) (0.13%): 2.21% contribution
- Johnson & Johnson (JNJ) (-0.27%): 2.19% contribution
- AbbVie (ABBV) (-0.68%): 2.05% contribution
- Walmart (WMT) (-0.92%): 2.02% contribution
- Bank of America (BAC) (0%): 1.61% contribution
- Merck (MRK) (1.5%): 1.47% contribution
Net Asset Value
These 10 stocks have a considerable influence on the returns of the Vanguard High Dividend Yield ETF, an exchange-traded fund (ETF) aiming to mirror the index it targets. As with the index, the ETF maintains a varied exposure to several stock market sectors.
The ETF's most significant exposure is to the financial sector, accounting for around 21.8% of its overall portfolio as of late 2024. The ETF's sector allocation across 10 out of the 11 stock market sectors (excluding the real estate sector) is as follows:
31.15%
- Materials: 2.00% exposure
- Consumer Discretionary: 10.10% exposure
- Consumer Staples: 10.80% exposure
- Energy: 9.60% exposure
- Financials: 21.80% exposure
- Healthcare: 11.70% exposure
- Industrials: 12.70% exposure
- Technology: 9.80% exposure
- Telecommunications: 4.30% exposure
- Utilities: 7.20% exposure
Investment consideration
8.95%
Should I invest in the Vanguard High Dividend Yield ETF?
Investing in the Vanguard High Dividend Yield ETF could be a smart choice due to several reasons. This ETF offers a low-cost, passive investment that allows for diversified exposure to top stocks and sectors, focusing on high-dividend yield companies.
10.79%
If you're interested in an investment that aligns with the FTSE High Dividend Yield index, this ETF could be a suitable option for your portfolio. Low interest rates have presented struggles for various sectors, and the financial sector has experienced some of the most significant challenges. However, as interest rates gradually decrease, the financial sector seems poised for favorable tailwinds. This shift could be particularly beneficial for the Vanguard High Dividend Yield ETF due to its heavy financial sector weight.
Additionally, the Vanguard High Dividend Yield ETF's portfolio includes some of the world's most renowned companies, spanning sectors such as healthcare to consumer staples. This gives it broad exposure to low-cyclicality spaces, helping it to perform well in various market circumstances.
9.90%
Keep in mind that no investment guarantees returns. If you're seeking a fund that offers above-benchmark returns or has less concentration among its top standings, the Vanguard High Dividend Yield ETF may not be the best fit for you.
Dividends
Does the Vanguard High Dividend Yield ETF pay a dividend?
The Vanguard High Dividend Yield ETF paid out a dividend with an approximate 2.6% yield in late 2024. This yield is nearly twice that of the average stock trading on the S&P 500. The ETF pays out quarterly dividend income.
Benchmark
Remember that dividends paid out can vary from quarter to quarter due to dividends received from the fund's underlying portfolio holdings. Other factors affecting an ETF's payout include market conditions, interest rates, and the performance of the sectors in which the fund is concentrated.
Expense ratio
31.23%
What is the Vanguard High Dividend Yield ETF's expense ratio?
The Vanguard High Dividend Yield ETF maintains a relatively low expense ratio of 0.06%. Compared to the typical 0.5% index ETF expense ratio, the Vanguard High Dividend Yield ETF's low expense ratio allows investors to retain a larger portion of their overall returns.
9.02%
Expense Ratio
An expense ratio is a percentage of a mutual fund or ETF's assets deducted annually to cover management, operational, and administrative costs. With an ultra-low 0.06% expense ratio, the Vanguard High Dividend Yield ETF's management fees on a $10,000 investment would be just $6 per year. In comparison, a $10,000 investment in a fund charging 0.5% would cost an annual fee of $50. Over time, these higher expense ratios can significantly eat away at investors' returns.
10.84%
| Metric | 1-Year | 3-Year | 5-Year | 10-Year ||-------------------|---------|---------|----------|----------|| Market Price | 31.15% | 8.95% | 10.78% | 9.89% || Net Asset Value | 31.15% | 8.95% | 10.79% | 9.90% || Benchmark | 31.23% | 9.02% | 10.84% | 9.95% |
The gist of the Vanguard High Dividend Yield ETF
9.95%
Over the years, the Vanguard High Dividend Yield ETF has excelled in delivering returns that align with the FTSE High Dividend Yield Index. Its minimal expense ratio, coupled with extensive diversification among some of the world's leading companies and their respective sectors, has allowed income investors to boost their returns consistently since the fund's establishment approximately two decades ago.
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FAQ
Investing in Vanguard High Dividend Yield ETF: FAQ
How to invest in VYM?
You can purchase the Vanguard High Dividend Yield ETF through Vanguard or your usual brokerage firm.
Is VYM a smart investment?
The Vanguard High Dividend Yield ETF is a solid investment. It offers cost-effective exposure to the companies and sectors comprising the FTSE High Dividend Yield Index.
Does VYM pay out a dividend?
Yes, the Vanguard High Dividend Yield ETF dispenses a dividend, which it distributes quarterly.
How does the Vanguard High Dividend Yield ETF operate?
The Vanguard High Dividend Yield ETF aims to replicate the performance of the FTSE High Dividend Yield Index, which strives to gauge the investment return of common stocks of companies boasting high dividend yields.
Bank of America partners with Our Website Money as an advertiser. JPMorgan Chase collaborates with Our Website Money as an advertiser. Rachel Warren holds stakes in AbbVie and Johnson & Johnson. Our Website possesses stakes in and recommends AbbVie, Bank of America, Home Depot, JPMorgan Chase, Merck, Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF, and Walmart. Our Website recommends Broadcom and Johnson & Johnson. Our Website maintains a disclosure policy.
- For individuals looking to invest in ETFs with a focus on dividends, the Vanguard High Dividend Yield ETF (VYM) could be an appealing option due to its low expense ratio and broad exposure to high-dividend yield companies.
- As part of their investment strategy, many income-oriented investors allocate funds to ETFs like VYM, taking advantage of its diversified portfolio that includes some of the world's leading companies across various sectors. In such a scenario, managing their finances effectively and considering tax implications when investing in ETFs could help maximize their returns.
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