Bundles Are Best

Easy Income Strategy – Bundles of Dividends VYM

Businesses like to sell bundles. You can bundle your cell phone with internet. You can bundle your homeowners and auto insurance for a better rate. When we took our oldest granddaughter to Hawaii for a high school graduation gift trip, the travel agent bundled the airfare, car rentals, resort reservations, and some special additions. Bundles make life easier and can reduce costs. The same is true with investing. Many investors don’t want to buy individual stocks.

Therefore, an ETF like VYM (Vanguard High Dividend Yield ETF) is one such bundle for a dividend growth investor. There are many reasons this is a good strategy.

Reasons I Like Vanguard High Dividend Yield ETF

Although dividend yield is important, “high” dividend yield is relative and can vary depending on the bullishness or bearishness of the overall stock market. As the bear takes hold, yields typically go up. That is a good time to buy dividend growth investments like VYM. When the stock market shoots up, buying may be a bit less appealing. I like VYM more for the dividend history growth. It has proven itself. So I recently bought more shares of VYM in several of the accounts I manage. I knew that Vanguard was going to announce the first 2023 dividend, and I was hoping it would be a good one. It was.

I also like VYM for the diversification into many different business sectors, business sizes, and just the good number of companies that make up this ETF.

EIS Investment Number Seven

This is the seventh in the easy income series, but it is the first ETF I will review in this series. My goal is to present arguments in favor of a simplified and uncomplicated way to have income before and in retirement that grows even if we do nothing.

In each of these educational posts I discuss: 1) The nature of the investment, 2) The reason it may qualify as easy money, 3) The quality of the investment using outside resources to help gauge quality, and the 4) Factors that determine if and when I buy shares of the investment. In each case I will be talking about an investment that we own.

The Nature of VYM

Vanguard Whitehall Funds – Vanguard High Dividend Yield ETF is an exchange traded fund launched and managed by The Vanguard Group, Inc. and focused on the United States. The fund invests in stocks of companies operating across diversified sectors. The fund invests in growth and value stocks of companies across diversified market capitalization. The fund invests in dividend paying stocks of companies. The fund seeks to track the performance of the FTSE High Dividend Yield Index, by using full replication technique. Vanguard Whitehall Funds – Vanguard High Dividend Yield ETF was formed on November 10, 2006 and is domiciled in the United States.

It is best to compare like quarters to each other when looking at dividend growth when the dividends are variable.

The investment seeks to track the performance of the FTSE High Dividend Yield Index that measures the investment return of common stocks of companies that are characterized by high dividend yield. The manager employs an indexing investment approach designed to track the performance of the index, which consists of common stocks of companies that pay dividends that generally are higher than average. The adviser attempts to replicate the target index by investing all, or substantially all, of the fund’s assets in the stocks that make up the index, holding each stock in approximately the same proportion as its weighting in the index.

VYM 5-Year Dividend History

VYM 10-Year Dividend History
Stock Rover Calendar Year Dividend Payments are a good way to see annualized dividend growth.
It generally isn’t wise to accept dividend growth without considering the price change of an investment. VYM has respectable price growth combined with dividend growth.

Why I Think VYM Qualifies using EIS*

An ETF is a bit more difficult to rate, as there are various factors you must consider that are not the same as investing in a single company’s stock. Having said that, I am not looking for rockets to the moon. Rather, I want a freight train that is likely to stay on track and just keep delivering as it chugs down the line. This is a bit of a compromise. I want diversification and am willing to experience lower price growth as along as dividend growth is likely. Suffice it to say that our ownership of 2,545 shares says I think this is a good investment.

Wayne’s Easy Income Strategy for VYM
Weiss rates VYM as a weak buy at this time.

The Income from the VYM ETF Investment

The proof is in the dividends. I don’t trade options on VYM shares. The only thing I need or want is dividends and modest dividend growth. The estimated annual dividends from this investment will be $8,271 in the next twelve months. This is only 5.7% of the total dividend income we will likely receive from our total mix of investments this year, so I don’t depend heavily on this investment for our main income growth. However, it is easy income.

Factors I Consider Before Buying an ETF

One key factor to consider is the makeup of the top ten investments. During times of market stress, this can have a negative impact on the price of the investment. In the case of VYM, there top ten includes five companies in health care, making up almost 11% of the total investment. I think health care is a good sector, so this does not bother me.

VYM Top Ten Holdings

The other three sectors in VYM’s top ten are energy, banking (financials) and consumer discretionary. Banking and energy are currently under pressure for varying reasons. If you are a long-term investor, this should be of lesser concern.

VYM’s Holdings Breakdown by Sectors

Reminder: What is EIS?

EIS is my abbreviation for “Easy Income Strategy.” Each value needs to be at least a “3” or I will pause and not rush to buy. If most of the values are “4” or “5”, I will either buy, or continue to hold or add more shares. Therefore, “5” is a strong reason to buy, “4” is a good reason to buy, and anything lower than a “3” is a cause for potential concern.

Conclusion

VYM fits my requirements as a long-term ETF income investment. It is in our top five investments. I also like SCHD and DGRO for diversification.

VYM has good ETF grades, good dividend growth and excellent concentration/risk parameters.
Compare VYM with comparable ETFs to understand the reason it is a good long-term dividend growth investment.

Full Disclosure

We currently own 2,545 shares of VYM. I plan to continue to add shares over the next several years.

The Easy Income Strategy – What is Easy Income?

We need to define “easy.” When I say easy, I don’t mean there is no work involved. Rather, the term is meant to convey simplified, unhurried, user-friendly, and uncomplicated. Therefore, it isn’t about trying to sell something, and it certainly isn’t about trading options. It also isn’t about trying to time the market with a buy low and sell high strategy. It is about a process that results in income, and the primary goal is to minimize the time spent while maximizing income that grows over time.

Easy Money is Easy

Easy money is money you can easily acquire. It is income obtained with a minimum of effort. It sounds too good to be true. In fact, most of the time when someone pitches something that is too good to be true, it isn’t true. I think there are some exceptions.