In fact, Bank of America ( BAC) recently downgraded CVX, calling it a "victim of its own success", and noting the following: However, that market has fully priced in all of the good news while ignore the potential downside risk. It's no surprise that the 2 oil giants make up VYM's top 4 list of holdings, given the run up in energy prices. VYM's top 10 holdings include dividend stalwarts like Johnson & Johnson ( JNJ), Exxon Mobil ( XOM), and Chevron ( CVX). For VYM to be appealing, I would expect for the dividend yield plus 5-year dividend CAGR to be at least 10%. Moreover, VYM also doesn't have a particularly high dividend growth rate, with 3 and 5-year dividend CAGRs of 4.6% and 6.3%, respectively. While I do like VYM's broad diversification, I don't think it lives up to the "High Dividend Yield" in its name, with a dividend yield of just 2.9%. As shown below, VYM's total return has been flat over the trailing 12 months, comparing favorably to the negative 16% total return of the S&P 500. While VYM's total return has modestly underperformed that of the S&P 500 over the past decade (197% versus 221%), its focus on dividends has proven effective at giving investors significant downside protection over the past year. As shown below, VYM has exposure to other dividend paying segments including energy and Industrials, which combine to add another 21% of the portfolio total. This expense is more than covered by VYM's 2.94% dividend yield and should not be of concern to investors.įinancials, Healthcare, and Consumer Defensive make up VYM's top 3 sectors comprising half of the portfolio total. Similar to Vanguard's family of ETFs and mutual funds, VYM charges a low expense ratio of just 0.06%, sitting well below the 0.40% median across the ETF universe. As one would expect from a dividend focused ETF, VYM has lower exposure to technology stocks, which generally do not pay or pay low dividends, compared to the S&P 500 ( SPY ). The Vanguard High Dividend ETF seeks to track the performance of the FTSE High Dividend Yield ETF. While this ETF holds a number of quality names, I highlight why caution is warranted at this time with regards to buying into this ETF, and give a level at which I'd be interested, so let's get started. This brings me to the Vanguard High Dividend Yield ETF ( NYSEARCA: VYM). ETFs are a great way to gain automatic diversification, and for many investors, this comes with a peace of mind in not having to trade the market day in and day out and second guess one's own decision-making abilities.įor investors who wish to own an all-in-one basket of stocks, low cost ETFs are a good option, and Vanguard is a posterchild for charging low fees, considering that its owners are the very investors in its funds.
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