The majority of Vanguard ETFs distribute dividends often, usually once every quarter or year. Vanguard dividend ETFs are focused on a single sector of the stock market or the fixed-income market. Investing in stocks or bonds through a Vanguard fund often yields dividends or interest, which Vanguard then distributes as dividends to its shareholders in order to maintain its status as an investing firm for tax purposes. Vanguard provides investors with access to more than 70 different ETFs, each of which focuses on a different type of company, market capitalization, country, term, or level of risk. Morningstar, Inc. gives the majority of Vanguard ETFs a four-star rating, with certain funds receiving a five- or three-star rating.
How to understand Vanguard dividend ETFs
Vanguard funds are noted for having lower-than-average expense ratios in the fund industry. This is one of their more distinctive characteristics overall. The average expense ratio for a typical Vanguard ETF was roughly 0.06% as of December 2020. But, as of September 2021, it ranges from 0.03% to 0.28%. The most expensive Vanguard dividend ETFs typically invest internationally, have high turnover ratios, and target highly specific market segments. The Vanguard dividend ETFs that specialize in corporate or treasury bonds are typically the most affordable.
Vanguard dividend ETFs: how do they function?
A 30-day SEC yield, a standardized yield created by the Securities and Exchange Commission (SEC) for the purpose of fair fund comparison, is often used to evaluate ETF dividend payouts. The 30-day SEC yield, which is determined using the most recent 30-day period, represents the investment income that a fund made after deducting its costs. Over 70 Vanguard ETFs pay dividends in the form of quarterly or yearly payouts as of September 2021. There are a few Vanguard funds that pay dividends on a monthly basis, albeit it is not very frequent. As of September 2021, the 30-day SEC yield for Vanguard ETFs ranges from 0.18% to 3.88%.
Why the Large Cap Value sector is important?
The Vanguard dividend ETFs, which were introduced on November 10, 2006, is a passively managed exchange traded fund created to offer a broad exposure to the US stock market‘s Large Cap Value sector. Vanguard is the fund’s sponsor. It is one of the largest ETFs seeking to match the Large Cap Value sector of the US equities market, with assets totaling approximately $50.40 billion.
Market capitalizations for large cap corporations are typically greater than $10 billion. In comparison to mid and small cap companies, they are typically a stable option with lower risk and more reliable cash flows. Value stocks have lower than average price-to-earnings and price-to-book ratios, as well as slower growth rates in sales and earnings. Value equities have outperformed growth stocks over the long term in almost all markets. In ferocious bull markets, however, they are more likely to underperform growth stocks.
Costs
In the long run, cheaper funds can do much better than their more expensive equivalents, all other things being equal. Expense ratios are a key determinant in an ETF’s performance. With annual operating costs of 0.06%, this ETF is among the least expensive ones available in the market. Its trailing 12-month dividend yield is 2.98%.
Exposure by sector and top holdings
Despite the various benefits of these sorts of funds, such as diversified exposure, which reduces the risk associated with single stocks, it is crucial to thoroughly research an ETF’s holdings before investing. Additionally, the majority of ETFs are extremely openly disclosed products that reveal their holdings every day. This ETF allocates the largest portion of its portfolio—roughly 19.70%—to the Financials sector. The top three are completed by healthcare and consumer staples.
The top 10 holdings represent around 23.11% of the total assets managed, with Johnson & Johnson accounting for roughly 3.28% of the total assets, followed by Exxon Mobil Corp. and JPMorgan Chase & Co.
Effectiveness and risk
Before fees and expenditures, Vanguard dividend ETFs aim to mimic the performance of the FTSE High Dividend Yield Index. Components of the FTSE High Dividend Yield Index include common stocks of businesses that typically pay dividends that are greater than the industry average. As of January 5, 2023, the ETF return is down about -1.60% over the past year and is currently at 0.67%. Its price range throughout the previous 52 weeks was between $94.88 and $115.01.
The ETF is a medium risk option in the market with a beta of 0.86 and a trailing three-year standard deviation of 23.52%. It effectively diversifies company-specific risk with its approximately 445 holdings.
What are the alternatives of Vanguard dividend ETFs?
The Zacks ETF Rank of Vanguard High Dividend Yield ETF is 1 (Strong Buy). However, it is determined, among other things, by the predicted asset class return, the expense ratio, and momentum. As a result, VYM is a great choice for investors looking to gain exposure to the Style Box – Large Cap Value market category. Investors may also want to have a look at some other ETFs in the market.
Both the Vanguard Value ETF (VTV) and the iShares Russell 1000 Value ETF (IWD) follow the same index. Vanguard Value ETF has $98.58 billion in assets, compared to $54.92 billion for iShares Russell 1000 Value ETF. IWD charges 0.04% and has an expense ratio of 0.18%.
Conclusion
A growing number of institutional and retail investors are turning to passively managed ETFs because of their cheap costs, transparency, flexibility, and tax efficiency. They make great investments for the long term.
