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 somewhat beneath 1.2%. That comparability is definitely fascinating in one other method, and it highlights the worth that Vanguard Excessive Dividend Yield ETF offers — even for those who solely have $200 to take a position proper now.
The very first thing that traders want to grasp 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. It’s important to be sure to know what they’re doing.
Vanguard Excessive Dividend Yield ETF is an index-based ETF, which suggests 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 out 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 affect on efficiency. That is fairly straightforward to grasp and clearly focuses traders on the highest-yielding shares. The price for all of it is a tiny 0.06% expense ratio.
Some dividend traders may 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 all the way down to the variety of shares being included within the portfolio.
Identical to the S&P 500, Vanguard Excessive Dividend Yield ETF holds round 500 shares. Whereas all of them pay dividends, the index it tracks truly 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 massive 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 surprising. This implies that, for a dividend investor, this ETF may very well be switched out for the S&P 500 as a core inventory holding. Proper now may even be a superb time to think about a swap, given the dynamics driving the S&P 500 at present.
