Vanguard High Dividend Yield strikes a balance between higher yield and the inherent risks. Weighting stocks by market cap steers the fund toward more stable, large-cap stocks and away from those whose dividends may be distressed. Its consistently strong risk/reward profile underpins its Process Pillar rating upgrade to High from Above Average.

This fund tracks the FTSE High Dividend Yield Index. It starts with large- and mid-cap stocks in the FTSE USA Index, excluding REITs, and ranks them by their expected dividend yield over the next 12 months. The index selects those representing the higher-yielding half of eligible dividend-paying stocks. Selected holdings are weighted by float-adjusted market cap, pulling the portfolio toward larger, more stable stocks. 

Focusing on dividend yield gives the portfolio a value orientation that can open the portfolio to risk. Value traps, or stocks with deteriorating fundamentals and declining prices, pose a significant risk to dividend funds. But this strategy limits its exposure to risky companies. Sweeping half of the dividend-paying universe into its portfolio diversifies stock-specific risks and limits the influence of distressed firms. Market-cap-weighting also emphasizes larger, more stable firms that should have the capacity to continue making dividend payments. This mitigates the impact of value traps because their weight drops as prices fall.

Leaning toward stable companies comes at the cost of maximizing dividend yield. But the fund's yield of 3.10% still surpassed the Russell 1000 Value Index by over 1 percentage point as of August 2023. Stability extended to performance as well, with the fund experiencing a five-year standard deviation 8% lower than its category bogy.

Similar to other dividend-focused funds, this fund's sector composition can deviate substantially from the category index's, owing to its yield orientation. Market-cap weighting normally keeps these differences small, but the fund's yield screen can still exclude a significant portion of the market in extreme conditions. Between 2010 and 2018, for instance, the fund's allocation to financial stocks was anywhere from 15-20 percentage points below the category average. This is an artifact of the post-financial-crisis dividend cuts across much of the sector. While this did not hurt the fund's performance significantly, sector bets tend to be an uncompensated risk.

This fund's cost-conscious approach sets it apart from the crowd. The 0.06% fee for its exchange-traded fund share class is among the lowest in the large-value Morningstar Category.

Analyst Rating

A steady approach to higher yield.

Director

Bryan Armour

Exxon Mobil

JPMorgan Chase & Co

Johnson & Johnson

Broadcom

Procter & Gamble

Home Depot

Chevron

Merck

AbbVie

PepsiCo

Vanguard High Dividend Yield casts a wide net and uses market-cap-weighting to rein in risk. It delivers a competitive current yield while sporting strong fundamentals, which has consistently benefited risk-adjusted performance. These features underpin the fund’s Process Pillar rating upgrade to High from Above Average.

High

Process

The Vanguard equity index group boasts seasoned managers and a dedicated supporting staff well-equipped to provide tight index tracking, earning it an Above Average People rating.

Gerard O'Reilly and Nick Birkett comanage this strategy. O'Reilly, a principal at Vanguard, has been with the firm since 1992. Birkett, who has been with Vanguard since 2017, replaced William Coleman on this strategy in February 2023. O'Reilly has been a named manager on this strategy since 2016. Vanguard frequently rotates its managers to promote breadth and depth across the team—we do not expect the manager change to disrupt the strategy in any way.

The managers are responsible for the fund's trading, providing more portfolio insights than a stand-alone trader. They are supported by a global team of dedicated personnel and sophisticated, scalable technology that optimize precision and reduce managers' workload. Vanguard's independent risk management team works closely with the managers to monitor trades and review any potential issues. Managers' compensation is tied to performance using a combination of tracking error and excess return metrics, which aligns their interests with investors'.

Above Average

People

The Vanguard Group retains a High Parent rating. 

Mutual ownership, low costs, and a direct-to-investor playbook have helped spur Vanguard's leadership within the United States. Client service missteps notwithstanding, Vanguard over the past decade has grown its market share of U.S. open-end and exchange-traded fund assets at about a 5% annualized clip. At that rate, Vanguard's portion of the U.S. industry will cross 50% around 2035.

True, some competitors can now match or even undercut Vanguard on fees for broad market exposure. But Vanguard's burgeoning advice business could help it keep or even extend that lead. Through Digital Advisor and Personal Advisor Services, Vanguard has built an increasingly compelling ecosystem of advice for investors with simple to complex needs.

Vanguard is also using its advice business to expand overseas, but that's a work in progress. Of Vanguard's USD 7.6 trillion in global assets under management in March 2023, non-U.S. investors owned less than 10%, a figure that has changed little in recent years. Strategic shifts in China and other markets account for the slow pace, including returning money to institutions that had been layering on fees. Vanguard hopes to recoup that money and more by focusing on individual investors and the advisors who serve them. Provided Vanguard sticks to its playbook, its advantages should translate into success abroad, too.

Parent

Vanguard High Dividend Yield ETF

VYM tracks the FTSE High Dividend Yield Index. The index selects high-dividend-paying US companies, excluding REITS, and weights them by market cap.

iShares Core Dividend Growth ETF

Schwab US Dividend Equity ETF

Vanguard Dividend Appreciation ETF

Advisors and end clients continue to save as asset managers like BlackRock make more ETFs available for net expense ratios of 0.05% or less. Today, BlackRock announced it was cutting the fee of the iShares Core Dividend ETF (DIVB) to 0.05%, from 0.25%.

BlackRock Resets the Bar for Dividend ETFs With Fee Cut

Our factor analysis suggests that now might be a good time to invest in Vanguard's High Dividend Yield ETF. The ETF tends to outperform the broader market whenever market participants crave high-quality stocks.

VYM: Our Factor Analysis Screams Buy

iShares S&P 500 Value ETF

iShares S&P 500 Growth ETF

iShares Russell 1000 Value ETF

iShares Russell 1000 Growth ETF

Vanguard Value ETF

Vanguard Growth ETF

Returns largely determined by time period, fund characteristics.

Checking in on Factor ETF Performance

Invesco High Yield Equity Dividend Achievers ETF

Income-oriented investors should take a look at both Invesco High Yield Equity Dividend Achievers ETF (PEY) and Vanguard High Dividend Yield ETF (VYM). They are both attractively valued with dividend yields close to a peak level in a decade.

PEY And VYM: Both Attractive But I Prefer VYM

Vanguard International Dividend Appreciation ETF

We have seen the launch of John Hancock U.S. High Dividend ETF (JHDV) and Altrius Global Dividend ETF (DIVD) lately.

Flurry of High-Dividend ETFs Hit the Market

Amgen

Best Buy

Bank of New York Mellon

BlackRock

Comerica

Comcast

Darden Restaurants

Fifth Third Bancorp

Fidelity National Financial

Interpublic Group of Companies

Morgan Stanley

Omnicom Group

Principal Financial Group

Packaging Corp of America

PNC Financial Services

Regions Financial

State Street

T. Rowe Price Group

Texas Instruments

U.S. Bancorp

WEC Energy Group

Watsco

There are 24 stocks on my high yield watchlist for October 2022. Nearly all of the stocks on my watchlist are undervalued based on dividend yield theory.

High Yield Stock Watchlist - October 2022

JPMorgan Equity Premium Income ETF

With the market entering bear territory and central banks engaging in quantitative tightening to battle record-high inflation, many analysts are forecasting a recession. So, many investors are turning to dividend stocks and their related exchange traded funds.

The 3 Most Popular Equity Income ETFs

JPMorgan BetaBuilders Europe ETF

SPDR EURO STOXX 50 ETF

iShares Core MSCI Europe ETF

Vanguard FTSE Europe ETF

iShares Core High Dividend ETF

SPDR Portfolio S&P 500 ETF

Invesco S&P 500 Low Volatility ETF

Vanguard S&P 500 ETF

When you see the largest ETF, the SPDR S&P 500 ETF (SPY), down more than 20% year-to-date in late September, and with an industry-leading $23 billion of net outflows you might think investors are pulling back on ETF adoption.

ETF Growth Continues Despite Tough Market

These Vanguard index funds have outperformed the broader stock market over the past year.

2 Perfect Index Funds to Buy in a Bear Market

iShares S&P Mid-Cap 400 Value ETF

iShares S&P Mid-Cap 400 Growth ETF

iShares Core S&P Small Cap ETF

iShares S&P Small-Cap 600 Value ETF

iShares S&P Small-Cap 600 Growth ETF

iShares MSCI USA Momentum Factor ETF

iShares MSCI USA Quality Factor ETF

Invesco S&P 500 High Beta ETF

iShares Edge MSCI Min Vol USA ETF

Vanguard U.S. Liquidity Factor ETF

VYM has certainly suffered so far in 2022, but the ETF's nearly 13% year to date haircut compares favorably against the broad stock market's 22.6% tumble via SPY. Momentum for the factor funds, unsurprisingly, is deeply negative.

High Dividend Yield Is Leading Edge Of Defense For U.S. Shares

Invesco DB Commodity Index Tracking Fund

iShares U.S. Healthcare Providers ETF

Invesco KBW Property & Casualty Insurance ETF

Invesco Dynamic Food & Beverage ETF

Invesco Dynamic Large Cap Value ETF

United States Oil Fund LP

Ark Investment???s Cathie Wood recently forecast an impending deflationary wave, rather than increasing inflation.

Time to Buy the Dip? ETFs in Focus

VYM is a high-yielding ETF offered by Vanguard. It has a current yield of 3.0% and solid long-term total returns.

VYM: How Does It Compares Vs. SCHD?

SCHD and VYM are two of the largest, most well-known U.S. dividend ETFs in the market. Both are broadly similar choices, yielding slightly above 3.0%. SCHD's overall performance track-record is stronger, but VYM has outperformed in the recent past.

SCHD Vs. VYM: Which ETF Is The Better Buy?

Vanguard International High Dividend Yield ETF

While defensive strategies like Treasury inflation-protected securities (TIPS) are available to investors, another way to beat rate hikes is to simply outpace them with more yield.

Outrun the Fed's Rate Hikes With These 2 ETFs

Diageo

GlaxoSmithKline

Paramount Global

Pfizer

Scotts Miracle-Gro

Viatris

The stock market took a nose dive on August 26th, shedding over 3% in some instances on the overall valuation of the stock market. Diageo yields well above the S&P 500 and is a better yield on average than the majority of high quality stocks.

Dividend Stock Watch List: Lanny's September 2022 Edition

Delta Air Lines

You'll be missing a stream of steady income.

Ignoring Dividend Stocks In Your Investment Portfolio? You'll Regret That

With rising inflation, retirees relying on passive income sources have to re-strategize in order to keep pace with or hopefully outpace increased consumer prices. As such, there are some alternatives to consider to counteract inflation, as outlined in a Motley Fool article.

Alternate Sources of Income for Retirees Amid Rising Inflation

Vanguard Large-Cap ETF

The Vanguard High Dividend Yield ETF seeks to track the performance of the FTSE High Dividend Yield Index, which has provided a yield advantage over the other ETF. The Vanguard Large-Cap ETF seeks to track the performance of the CRSP US Large Cap Index. Sometimes, the lower yielding ETF has a superior total return though.

VYM Vs. VV: Extra Yield Means Giving Up Return (Sometimes)

Global X SuperDividend US ETF

SP Plus

As recessionary fears eased a bit in the United States and inflation cooled to some extent, bond yields jumped. High dividend ETFs proved to be a good solution in this kind of scenario.

Guide to High Dividend Paying ETFs

iShares Select Dividend ETF

Dividend-focused ETFs have been garnering huge investor interest in a rising rate environment.

5 Most-Loved Dividend ETFs of This Year

Risk tolerance could be rising again after a strong market rally during the month of July. While stock market indexes have been climbing, so have bond prices, and July also saw a marked increase in flows for high yield bond funds.

Demand for High Yield Bond Funds Grew During July

First Trust Value Line Dividend Index Fund

ProShares S&P 500 Dividend Aristocrats ETF

First Trust Rising Dividend Achievers ETF

SPDR S&P Dividend ETF

The top 10 dividend ETFs have had inflows of more than $32 billion this year.

Dividend ETFs Still Popular Despite Bond Yield Surge

VYM is an interesting 3% yielding dividend fund from Vanguard that accomplishes its goals of generating larger than average yield while capturing capital appreciation. After looking at the markets again, VYM is trailing SCHD in many categories I would use as decision factors in selecting a dividend fund.

Vanguard High Dividend Yield ETF: Markets Are Rallying And VYM Is Trailing SCHD

Vanguard Consumer Discretionary ETF

Vanguard Health Care ETF

In 2021, with over $5.4 trillion in assets under management, Vanguard was the second-largest fund manager behind BlackRock (NYSE: BLK ). John Bogle, who founded the financial powerhouse, is also credited with transforming the investment management industry, bringing index funds to millions of retail portfolios.

The 3 Best Vanguard Funds to Buy in August

iPath Bloomberg Copper Subindex Total Return ETN

VanEck Vectors Oil Services ETF

Schwab U.S. REIT ETF

Vanguard Energy ETF

Vanguard Real Estate ETF

Real Estate Select Sector SPDR Fund

Health Care Select Sector SPDR Fund

SPDR S&P Oil & Gas Exploration & Production ETF

Industry experts share their go-to strategies and tools for navigating an inflationary environment.

Investors' Guide to Tackling Inflation

News for Vanguard High Dividend Yield ETF ETF (VYM)