By Dan Caplinger | September 13, 2012
The Motley Fool has been helping ordinary people become better investors for nearly two decades. This month, we're reaching out to millions of investors to help guide them in their quest toward financial knowledge and independence.
Along those lines, I'm planning to take a look at many of the most popular exchange-traded funds in the market today. ETFs have skyrocketed in popularity, but it's important to understand exactly what you're getting when you buy an ETF. Today, I'd like to focus on the Vanguard High Dividend Yield ETF (NYSE - VYM), an ETF that has capitalized on investors looking for as much yield as possible.
Dividend stocks have become popular for a couple of reasons. First and foremost, with bonds and other income-producing investments seeing rate reductions, cash-strapped investors have had to take drastic measures to get the money they need to make ends meet. But in addition, smart investors realize that receiving cash through dividends is often a better use of company capital than wastefully expending it on costly, ill-advised acquisitions or badly timed buybacks.
Vanguard High Dividend Yield isn't the biggest dividend ETF out there. It's not even the biggest Vanguard dividend ETF, as sibling Vanguard Dividend Appreciation (NYSE - VIG) is more than double its size. But with $5.2 billion in assets, it's no slouch, either.
Vanguard High Dividend Yield tracks an index of high-yielding dividend stocks. But don't make the mistake of assuming that you'll own a bunch of tiny companies with unsustainably high yields. The ETF's list of stocks reads like a who's-who of corporate America's most successful companies. ExxonMobil (NYSE - XOM) leads the list even with its modest 2.5% yield, and Wal-Mart pays an even smaller yield to investors. That said, you'll also find some big dividend payers among the ETF's holdings, with telecom stocks AT&T (NYSE - T) and Verizon (NYSE - VZ) being obvious choices thanks to their high levels of free cash flow and generous sharing of that capital with shareholders.
Vanguard High Dividend Yield does a great job of keeping costs low, charging annual expenses of just $13 for every $10,000 you invest. In the income department, it does better than its sibling ETF Vanguard Dividend Appreciation, with High Dividend Yield's $325 in annual income per $10,000 investment beating out its Vanguard competitor by about $100.
Vanguard High Dividend Yield does a good job of tapping into the dividend stock universe. To learn more about it, use this link to the ETF's main information page.
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