The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) is one of the most popular dividend-focused exchange-traded funds (ETFs). It has $68.6 billion in assets under management (AUM), ranking it as the third-largest dividend-focused ETF.
One factor driving the fund’s popularity is its returns over the years. It could quietly make you a multimillionaire over time.
The Vanguard High Dividend Yield ETF has been a solid performer over the years. The fund has delivered an average annual return of 9% since its inception in 2006. Meanwhile, its returns have been even higher in more recent years. The fund has delivered an annualized return of more than 10% in each of the past one-, three-, five-, and 10-year periods.
Investing $500 a month in the fund would grow to $2.1 million in around 40 years at a 9% annual rate of return. You could become a multimillionaire even faster if you invested more money each month or the fund delivered a higher return. For example, a $1,000 a month investment in the ETF would grow to nearly $2.7 million in 35 years at the fund’s historical average 9% rate of return. Meanwhile, a $500 monthly investment would grow to over $2.1 million in 35 years at an 11% average annual return (the fund has delivered an 11.3% average annual return over the past decade).
The Vanguard High Dividend Yield ETF has a very straightforward investment strategy. It aims to invest in stocks that have above-average dividend yields. While this strategy primarily aims to generate passive income for investors, dividend stocks have proven records of producing high total returns. According to data from Ned Davis Research and Hartford Funds, dividend-paying stocks have delivered an average annual total return of 9.2% over the past 50 years, more than double the return of non-dividend-paying stocks (4.3%). Meanwhile, companies with higher dividend payout ratios (which also tend to be those with higher yields) have historically outperformed the market more often than those with lower payout ratios.
The Vanguard High Dividend Yield ETF enables you to broadly invest in higher-yielding dividend stocks. The fund currently holds 565 stocks across all industries except real estate investment trusts (REITs). It has the highest allocation to the largest companies with above-average dividend yields. Broadcom, JPMorgan Chase, ExxonMobil, Johnson & Johnson, and Walmart are currently its top five holdings. Those companies have historically paid sustainable and steadily rising dividends. The fund’s focus on investing in higher-yielding dividend stocks positions it well to continue generating strong returns over the long term.
