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ETF Specialist

This Fund Finds Yield Without Loading Up on Risky Stocks

This fund manages to target high-yielding stocks while maintaining broad diversification.

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 Vanguard High Dividend Yield ETF (VYM) offers an attractive dividend yield without taking excessive risk. While it doesn't screen its holdings for profitability or their dividend sustainability, the fund's broad market-cap-weighted portfolio effectively diversifies risk and promotes low turnover. Its cost advantage gives it a durable edge against its peers and supports a Morningstar Analyst Rating of Silver.

The fund's index starts with all U.S. dividend-paying stocks (excluding REITs and smaller stocks), targets the higher-yielding half, and weights them by their market capitalization. This generates a portfolio of more than 400 stocks that leans toward mature giants such as Microsoft MSFT, Johnson & Johnson JNJ, and Exxon Mobil XOM. Most of these firms are growing more slowly than the broader market, so the fund has a value orientation. They also tend to be more profitable and exhibit lower volatility than the constituents of the Russell 1000 Value Index.

Adam McCullough does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.