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Do you like dividends? 2 Vanguard Funds to Buy Now

Vaseline 1 month ago

These two Vanguard dividend funds offer rich returns and strong performance.

The Vanguard High Dividend Yield Index Fund ETF (VYM 0.84%) and the Vanguard International High Dividend Yield Index Fund ETF (VYMI 0.51%) are two of Vanguard’s most popular dividend-focused exchange traded funds (ETFs).

These funds offer investors a way to gain exposure to a wide range of high dividend yield stocks, which can be a valuable part of a diversified investment portfolio. Here’s a closer look at what makes these funds attractive to long-term investors who value capital growth, regular income or a combination of these characteristics.

A roll of American money next to a sticky pad showing the dividends.

Image source: Getty Images.

Vanguard High Dividend Yield Index Fund ETF

The Vanguard High Dividend Yield Index Fund ETF, better known as VYM, is a popular investment vehicle for investors who want to invest in stocks with a high dividend yield on the US stock market. Launched in 2006, the VYM aims to improve the performance of… FTSE High Dividend Yield Indexcomposed of companies with a track record of high dividend yields.

VYM’s appeal lies in its yield, which stands at an impressive 2.82%, surpassing the average return of large-cap stocks (2.2% on average). S&P500 index (1.35%). This fact makes it an attractive option for investors looking for income.

The fund’s average annual return on capital of 8.53% since inception further enhances its appeal. However, it is important to note that the index lagged the S&P 500 in total return on capital during this period.

VYM Total Return Level Chart

VYM Total Return Level data per YCharts

The fund’s underperformance relative to this benchmark index can be attributed to the exceptional performance of certain US mega-cap companies, rather than a flaw in the fund’s stock selection criteria.

One of the most attractive features of the VYM is its low expense ratio of 0.06%, making it a cost-effective choice for investors. With positions in 557 stocks across different economic sectors, the fund also offers a diversified portfolio, reducing the risk of investing in individual stocks.

Vanguard International High Dividend Yield Index Fund ETF

The Vanguard International High Dividend Yield Index Fund ETF (VYMI) is an attractive option for investors looking to diversify their portfolio with high dividend yield stocks from markets outside the United States. The VYMI aims to reflect the performance of FTSE All-World ex US High Dividend Yield Indexcomposed of many international shares with high dividend yields.

One of the most attractive features of the VYMI is its yield. With a dividend yield of approximately 4.87%, it significantly exceeds the average return of large-cap stocks worldwide, and the average return of the S&P 500. This makes the VYMI an attractive choice for income-seeking investors.

Since its launch in 2016, the VYMI has delivered an average annual return of 8.31%, marking it as a robust vehicle for those looking to expand their dividend income streams across international borders.

Although the VYMI has not outperformed the S&P 500 index since its inception, the VYMI’s extensive portfolio of 1,526 stocks provides a level of diversification that is difficult to match. This greater level of diversification can provide downside protection against market-wide swings and unexpected macroeconomic headwinds.

The fund’s expense ratio of 0.22% is slightly above that of its domestic counterpart, the VYM, but still remains well below the average expense ratio of 0.98% for comparable funds. This positions the VYMI as a cost-effective option for income investors.

Final thoughts

Investing in dividend-focused ETFs like VYM and VYMI can be a winning move for investors looking to build wealth over time. Dividends can provide a reliable source of passive income, which can be especially valuable during market downturns when capital gains can be more difficult to achieve.

Additionally, reinvesting dividends can increase long-term returns, potentially leading to significant growth in investment value. So these two Vanguard funds should be attractive to investors who want to benefit from the power of compounding and who have a long-term view firmly in mind.

George Budwell has no position in any of the stocks mentioned. The Motley Fool holds and recommends Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.