There's value in this high-dividend ETF

This low-cost exchange-traded fund offers an attractive yield while diversifying risk.

Alex Bryan 28 June, 2016 | 5:00PM

 Vanguard High Dividend Yield ETF (VYM) is a compelling option for exposure to U.S. stocks with generous dividend payments. It offers both an attractive dividend yield without taking excessive risk and a sizable cost advantage relative to its peers (0.09% expense ratio).

The fund employs full replication to track the FTSE High Dividend Yield Index. The selection universe consists of all U.S. dividend payers, excluding REITs, from the FTSE All-World Index, which includes large-, mid- and some small-cap stocks. FTSE ranks all stocks by their 12-month forward dividend yield and selects the highest-yielding names for inclusion until the portfolio represents about half of the selection universe's market capitalization. It weights these holdings according to their market capitalization. The index is reviewed semi-annually.

This creates a portfolio of more than 400 names that leans toward mature giants such as  Microsoft (MSFT),  Johnson & Johnson (JNJ) and  AT&T (T). Most of these firms are growing more slowly than the broad market, giving the fund a value orientation.

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Securities Mentioned in Article

Security NamePriceChange (%)Morningstar Rating
AT&T Inc38.45 USD-0.41
ConocoPhillips58.36 USD-0.89
Johnson & Johnson149.20 USD0.56
Microsoft Corp179.47 USD-2.68

About Author

Alex Bryan

Alex Bryan  Alex Bryan, CFA, is director of passive strategies for North America at Morningstar. Before assuming his current role in 2016, he spent four years as an analyst covering equity strategies. He holds an MBA with high honors from the University of Chicago Booth School of Business.