Boost Your Investment Portfolio with This Exchange-Traded Fund

Investors looking to boost their investment portfolio might consider adding an equity with a high-yield dividend.

A popular choice in this category is the Vanguard High Dividend Yield Index Fund ETF Shares (VYM), an exchange-traded fund (ETF) with a high-yield dividend that is paid out quarterly. When investors start to see signs of an economic slowdown, a defensive approach becomes essential for their portfolio.

The past decade rewarded dividend ETF investors as central banks have been ultra-dovish. While the Fed cut rates three times in 2019, it has hinted at keeping interest rates unchanged in 2020 unless there is a dramatic change in the economic outlook that it currently views as being very good.

This $37.85 billion fund tracks the FTSE High Dividend Yield Index and offers a 12-month yield of 3.06%. That’s well above the S&P 500’s average 1.84% payout and is one of the cheapest high-yield dividend ETF options available, boasting an expense ratio of 0.06%. In my view, a good yield can cover up for capital losses to a large extent, if there are any.

As of Dec. 18, the Vanguard High Dividend Yield Index Fund ETF Shares (VYM) top 10 holdings include common stocks, many of which are household names, characterized by high-yield dividends.

Comprising 26.6% of the fund’s total assets, the top 10 holdings are: JPMorgan Chase and Co. (NYSE:JPM), 3.95%; Johnson & Johnson (NYSE:JNJ), 3.45%; Protector & Gamble Co. (NYSE:PG), 2.85%; Exxon Mobil Corp. (NYSE:XOM), 2.72%; AT&T Inc. (NYSE:T), 2.58%; Intel Corp. (NASDAQ:INTC), 2.43%; Verizon Communications Inc. (NYSE:VZ), 2.35%; Merck & Co. Inc. (NYSE:MRK), 2.12%; Chevron Corp. (NYSE:CVX), 2.11%; and Wells Fargo & Co. (NYSE:WFC), 2.04%.

VYM primarily is in financial services, 18.99%, as represented in the fund’s top 10 holdings, but also has a moderate presence in consumer defense, 14.25%. health care, 14.74% and technology, 10.57%.

The fund will take a smart approach toward security selections. It ranks them by their forecasted dividends of the next 12 months. The top half of those are included in the index, but they are weighted by market cap, not dividend. This method produces a diverse and relatively cheap dividend-oriented portfolio.

As you can see in the chart below, Vanguard High Dividend Yield Index Fund ETF Shares (VYM) is up 22.94% year to date.

Chart courtesy of StockCharts.com

As always, I am happy to answer any of your questions about ETFs, so do not hesitate to send me an email. You just may see your question answered in a future ETF Talk.

Jim Woods

Jim Woods is a 20-plus-year veteran of the markets with varied experience as a broker, hedge fund trader, financial writer, author and newsletter editor. Jim is the editor of Intelligence Report, Investing Edge, the Bullseye Stock Trader, and The Deep Woods (formerly the Weekly ETF Report). His books include co-authoring, “Billion Dollar Green: Profit from the Eco Revolution,” and “The Wealth Shield: How to Invest and Protect Your Money from Another Stock Market Crash, Financial Crisis or Global Economic Collapse.” He’s also ghostwritten many books and articles, as well as edited content for some of the investment industry’s biggest luminaries. His articles have appeared on many leading financial websites, including StockInvestor.com, InvestorPlace.com, Main Street Investor, MarketWatch, Street Authority, Human Events and many others. Jim formerly worked with Investor’s Business Daily founder William J. O’Neil, helping to author training courses in the CANSLIM stock-picking methodology. The independent firm TipRanks rates Jim the No. 3 financial blogger in the world (out of more than 6,000). TipRanks calculates that, since 2012, he's made 361 successful recommendations out of 499 total, earning a success rate of 72% and a +15.3% average return per recommendation. He is known in professional and personal circles as “The Renaissance Man,” because his expertise includes such varied fields as composing and performing music; Western horsemanship, combat marksmanship, martial arts, auto racing and bodybuilding. Jim holds a BA in philosophy from the University of California, Los Angeles, and is a former U.S. Army paratrooper. A self-described “radical for capitalism,” he celebrates the virtue of making money from his Southern California horse ranch.