Vanguard Excessive Dividend Yield ETF (NYSEMKT: VYM) has a 2.7% dividend yield. That won’t sound like a excessive yield, however it’s greater than twice the common of shares within the S&P 500 (SNPINDEX: ^GSPC), which is yielding a bit of underneath 1.2%. That comparability is definitely fascinating in one other means, and it highlights the worth that Vanguard Excessive Dividend Yield ETF supplies — even in the event you solely have $200 to take a position proper now.
The very first thing that buyers want to know about any exchange-traded fund (ETF) they purchase is the funding method. These are pooled funding merchandise, so you might be actually hiring another person to deal with the investing course of for you. You need to ensure you know what they’re doing.
Vanguard Excessive Dividend Yield ETF is an index-based ETF, which implies it merely mimics an index. That index is the FTSE Excessive Dividend Yield Index.
The FTSE Excessive Dividend Yield Index is fairly easy. Step one in creating the index is to pick all dividend-paying corporations on the U.S. exchanges. The second step is to line up all of these corporations by yield, from highest to lowest. The third step is to incorporate the highest-yielding 50% within the index.
The index is market-cap weighted, so the most important shares have the best influence on efficiency. That is fairly simple to know and clearly focuses buyers on the highest-yielding shares. The associated fee for all of this can be a tiny 0.06% expense ratio.
Some dividend buyers would possibly balk at this level, questioning how an ETF that’s designed to purchase the highest-yielding shares can have a yield that really appears pretty modest on an absolute degree. The reply boils right down to the variety of shares being included within the portfolio.
Similar to the S&P 500, Vanguard Excessive Dividend Yield ETF holds round 500 shares. Whereas all of them pay dividends, the index it tracks really pushes pretty low down into the yield vary of all dividend-paying shares. It has no selection, given the sheer variety of dividend-paying shares.
However here is the fascinating factor: Till a couple of very giant corporations began to dominate the S&P 500’s returns, Vanguard Excessive Dividend Yield ETF tracked pretty intently with the market’s efficiency, as highlighted within the chart. Given the extremely diversified portfolio it owns, that is not stunning. This means that, for a dividend investor, this ETF could possibly be switched out for the S&P 500 as a core inventory holding. Proper now would possibly even be a great time to contemplate a swap, given the dynamics driving the S&P 500 right now.