If you have $100 to invest today, you have a lot of options. You can buy one share of a great stock, or several shares of an emerging stock. You can also buy an exchange-traded fund (ETF) that gives you exposure to hundreds or thousands of stocks for just $100.
If you can put aside $100 every month to keep investing, you're in an even better position. Investing consistently over time, letting your money compound over years and hopefully decades, can generate wealth.
If you're interested in dividends, the Vanguard International High Dividend Yield ETF (VYMI 0.32%) is an excellent choice. Plus, each share costs less than $100.
Access to the world's best
As its name implies, the Vanguard ETF invests in global dividend stocks. Like all of Vanguard's ETFs, this ETF tracks an index -- in this case, the FTSE All-World ex-U.S. High Dividend Yield Index. The FTSE is the Financial Times Stock Exchange, which is the U.K.'s leading stock market index.
This Vanguard ETF comprises nearly 1,600 different stocks, which is quite large as far as Vanguard ETFs, or really any ETFs, go. There are several benefits to having so many components, such as exposure to many different stocks and categories, and minimizing risk.
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Unlike many of Vanguard's U.S. ETFs, there isn't one component that takes up a huge amount of the portfolio. The largest positions are Nestle, Roche, and HSBC, which each represent slightly less than 1.5% of the total. Of course, with almost 1,600 components, that's still a lot more than many of the smaller components. Its smallest positions each represent 0.12% of the total.
Although the index is global, European stocks make up about 44%, and the Pacific region accounts for another 26%. Emerging markets represent almost 22%.
Dividend stocks as a class are often categorized as low risk, but this ETF has Vanguard's highest risk rating. That's partially because it's focused on international stocks, which could come with different government regulations and could be riskier than U.S. stocks, and partially because of its focus on high yields.
Although the typical dividend stock is a mature, well-established company that isn't growing so fast and generates shareholder value through its dividend (think Dividend King), high-yielding stocks are sometimes risky. In fact, a very high yield is an alert that there might be risk involved.
Low cost, minimized risk
The Vanguard ETF has a dividend yield of nearly 4%. That's more than three times the S&P 500 average of 1.25%. That's not ultra high, and many of the companies the ETF invests in are low-risk industry leaders, like the ones mentioned above. As with all of the index ETFs, what makes it less risky is that stocks that fall below the bar will be replaced by something better.
Vanguard is known for its low expense ratios, which it can charge because its ETFs have a passive indexing model and it doesn't need to pay high manager fees, and because it's a huge company with trillions in assets. The Vanguard ETF's expense ratio is 0.17%, which is actually high in comparison with other Vanguard ETFs, but it's well below the average of 0.96% for these kinds of ETFs.
High yield, high returns
Dividend stocks aren't usually known for their market-beating ability; they have other benefits, like passive income. But the Vanguard International ETF is outperforming all other 96 Vanguard ETFs this year, with a year-to-date gain of 26.6%.
Over five years, it has returned an annualized average of 14.2%. That's enough to be in the top tier of Vanguard ETFs over that period although it's below the market's five-year annualized return of 14.7%. If you're a passive income investor, that's an excellent showing.
If you're looking for a top dividend ETF that has a low price tag, passive income, and exposure to many stocks you may otherwise not have access to, this is a smart buy today.
