It hasn't been the best start to 2025 for the major indexes of the U.S. stock market. As of March 7, the S&P 500 is down, the Nasdaq Composite is down, and the Dow Jones is essentially flat. However, this start doesn't mean it's time to sound the alarm.
The stock market has always had up and down periods; that's just how it goes. You shouldn't totally abandon your investing strategy when either happens, but you can use market dips or rallies to take advantage of opportunities or better position your portfolio.
During the current environment with a lot of uncertainty surrounding the stock market, one of the smartest investments I believe someone can make is in the Vanguard High Yield Dividend ETF (VYM 0.21%). Let's take a look at why.
A built-in safety net during down periods
One thing has remained true throughout the stock market's history: You can't predict its movements. You can make educated guesses based on historical performance, but nobody truly knows how the market will perform.
With a dividend-focused ETF like the Vanguard High Yield Dividend ETF, you get somewhat of a built-in safety net because you can count on consistent income no matter how the ETF's stock price moves.
The ETF pays out dividends from 530 companies, so the amount will inevitably fluctuate. However, you can count on the payout steadily increasing over time. In the past decade, the dividend payout has more than doubled, outpacing popular Dividend Kings like Altria, Coca-Cola, and Procter & Gamble.
VYM Dividend data by YCharts
The ETF's dividend payout won't be as stable as most dividend stocks, but its high payouts typically make up for its lower payouts.
Its last four dividend payouts have been $0.96, $0.85, $1.02, and $0.65 (all rounded to the nearest penny) -- an average of around $0.87. At current trading levels, that works out to a yield of more than double the S&P 500 average.
The ETF is led by some of the world's top companies
A major plus for investing in this ETF is the companies it has leading the way. Most of its top holdings are well-established blue chip stocks with strong financial health. Below are its top 10 holdings:
| Company | Percentage of the ETF |
|---|---|
| Broadcom | 5.52% |
| JPMorgan Chase | 4.12% |
| ExxonMobil | 2.63% |
| Walmart | 2.34% |
| Home Depot | 2.24% |
| Procter & Gamble | 2.15% |
| Johnson & Johnson | 2.01% |
| AbbVie | 1.79% |
| Bank of America | 1.69% |
| Wells Fargo | 1.44% |
Data source: Vanguard. Percentages as of Jan. 31, 2025.
These companies make up about a quarter of the ETF, so they have a good influence on its performance.
Sometimes, this can be both a blessing and a curse. However, in this case, the companies span six sectors (technology, financials, energy, consumer staples, consumer discretionary, and healthcare), which helps somewhat protect against sector-specific declines.
Here's how the ETF is divided by sector:
- Financials: 23.4%
- Industrials: 12.2%
- Health care: 11.1%
- Consumer discretionary: 10.5%
- Technology: 10.9%
- Consumer staples: 10%
- Energy: 9.1%
- Utilities: 6.9%
- Telecommunications: 4%
- Basic materials: 1.9%
Low fees ensure you keep more of your gains to yourself
ETF fees don't often get a lot of attention, but they matter -- especially if you're investing long term (which you should be). This ETF is cheap, with an expense ratio of 0.06%, or $0.60 per $1,000 invested annually.
Although slight differences may seem ignorable, they can really add up over time. For perspective, let's assume this ETF returns 10% annually and you invest $500 monthly.
In 20 years, the difference in fees paid between a 0.06% expense ratio and a 0.50% expense ratio exceeds $16,500. That's a significant amount for such a small difference in fees.
This ETF's low expense ratio means you can keep more of your gains to yourself instead of them eating away at your dividend payouts and gains.
