VYM ETF is up 20% in 2024: But is it a good dividend fund?

The Vanguard High Dividend ETF (VYM) has retreated in the past few days, falling by over 3.2% from its highest level this year. It was trading at $130.78, its lowest level since November this year. 

Other dividend ETFs like the Schwab US Dividend Equity (SCHD), iShares Core High Dividend ETF (HDV), and the WisdomTree US High Dividend Fund (DHS) slumped.

VYM ETF is a top dividend ETF

VYM is one of the biggest dividend ETFs in the market with over $76.48 billion in assets under management. It offers its investors a dividend yield of about 2.75%, which it has grown in the last 13 consecutive years. Its compounded annual growth rate in the last five years was about 5.32%.

It is debatable whether a fund like VYM should be called a dividend ETF because of the relatively low yield. For example, the Vanguard S&P 500 index, which is not widely seen as a dividend fund, has a yield of about 1.4%. 

The VYM fund tracks the FTSE High Dividend Yield Index, which tracks companies that are known for having a high dividend yield. It holds 537 companies and has a price-to-earnings ratio of 21.2. Its average earnings growth rate is about 10.4%, higher than that of the S&P 500 index.

The VYM ETF is mostly made up of companies in the financials industry, which make up about 23.2% of the fund. It is followed by companies in the industrials, consumer staples, consumer discretionary, and energy sector. 

This composition explains why its total return has lagged behind that of other EFs like those that track the S&P 500 and the Nasdaq 100 indices. These funds are mainly made up of technology companies that have a long track record of growth.

Top Vanguard High Dividend ETF companies

The biggest companies in the VYM ETF are Broadcom, JPMorgan Chase, ExxonMobil, Home Depot, Procter & Gamble, Walmart, and Johnson & Johnson. These are all top blue chip companies that have a commanding market share in their respective industries. 

For example, Broadcom has become the latest company to move into the $1 trillion club. It did that by becoming a major supplier of semiconductors and through acquisitions. The most recent buyout was VMware, a company that offers cloud computing software.

JPMorgan Chase is the biggest American bank that is known for its fortress balance sheet, while Exxon is the largest oil and gas company in the United States. 

The other top companies in the VYM ETF are Wells Fargo, Coca-Cola, Cisco Systems, McDonald’s, and Goldman Sachs.

Is the VYM ETF a good investment?

We believe that the VYM ETF has demonstrated that it does well. For example, its stock has jumped by 150% from its lowest point during the pandemic. 

However, there are a few concerns about this fund. First, it has a low dividend yield, which invalidates its role as a dividend fund. Besides, short-term government bonds are offering a higher return. The 10-year and 30-year bonds offer a return of over 4%. These bonds, however, don’t offer the price return that VYM provides.

Second, the VYM ETF’s total return has lagged behind the top benchmarks for a long time. The total return is a figure that looks at an asset’s price return and dividend payouts. We believe that the total return is the most important number to consider when investing. 

The VYM ETF has had a total return of 63% in the last five years, while the S&P 500 and Nasdaq 100 indices have jumped by 104% and 164%, respectively. The same trend has happened this year as the fund has jumped by 19.6%, while the Nasdaq 100 is up bu 31%.

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