Not Everyone Likes or Recommends VYM

VYM has Three Tens Worth Noting. It is a good long-term dividend growth powerhouse.

If you look at the Seeking Alpha author recommendations, you would not buy VYM shares. Vanguard High Dividend Yield Index Fund ETF, however, is not as bad as some authors would have you think. Some of this is driven by inflationary and recessionary fears. Some of it is due to a lack of share price growth. The things I have seen have not changed my opinion of VYM. It is our number one investment by total dollars, and it will remain so. Let me tell you why by looking at some “tens.”

Seeking Alpha authors are overly pessimistic about VYM – at least in my opinion.
VYM pays a good dividend every quarter.

Long-Term Investors Think Long-Term

Duh! Of course they do, don’t they? Clearly not all long-term investors have the same requirements for income. Retirees are likely to want a good income stream that grows over time. For those reasons, I have a normal process that looks at some tens for our investments. Let’s look at VYM’s ten-year dividend track record, the ten-year returns, and the top ten holdings. Those tens tell a story.

VYM’s Ten-year Dividend Track Record

For investments like ETFs, it is sometimes hard to judge if the graph shows a year-over-year increase. Seeking Alpha lets you see a graph for every quarterly dividend, but you can also view a ten-year graph. As you can see in the following illustration, the trend is upward. This is significant. Do you remember Covid-19? The stock market “crashed” but most companies continued to pay their dividends, and many increased their dividend during the difficult two years of Covid.

VYM has a good 10-year track record for growing dividends.
When looking at quarterly income, compare similar quarters for growth.

VYM’s Ten-year Returns

I don’t think it is unreasonable to expect an investment to grow by 8-10% per year. In fact, I question the value of investments (like bonds) that don’t have that potential. VYM, as you can clearly see, has a ten-year return of 90%. That means the value of your investment almost doubled when you include price appreciation and dividends. Bear in mind that you can reinvest dividends, and that makes the pile of shares grow even bigger. That also results in more dividends. All of this comes to you with a low expense ratio of 0.06%.

VYM’s total return is good for the long-term dividend growth opportunities.

VYM’s Top Ten Holdings

The third “ten” is the top ten holdings. Far too often the top ten are a list of “me too” stocks like Amazon, Facebook, Tesla, Google, and Microsoft. There is a place for those in your portfolio, but far too many funds hold far too much of these big five in their top ten. VYM, on the other hand, has good diversification in the entire portfolio. That includes both sector diversification and top-ten diversification. It is important to note that none of the top ten are more than 3.5% of the total investment. If you buy shares of an S&P 500 index fund, the top two investments (Apple and Microsoft) make up almost 15% of the total investment dollar. (SPY SPDR® S&P 500 ETF Trust.)

VYM holds shares of XOM, JNJ, JPM, PG, AVGO, CVX, HD, MRK, PEP and ABBV in the top ten.
Always look at the sector weightings when buying an ETF or mutual fund.

Full Disclosure

Cindie and I own 2,610 shares of VYM as a long-term investment. As a result, it is in the top ten investments we hold. This is not a recommendation for you to buy VYM. However, I do like the fact that our next dividend from Vanguard for our VYM shares will be $2,288. In other words, that is the same as a monthly income of $762. That buys a lot of groceries.