Compared to the S&P 500 (^GSPC +0.11%), the Vanguard High Dividend Yield ETF (VYM +0.11%) has more exposure to financials, energy, industrials, consumer staples, and utilities. That has been the winning formula in 2026, as losses from growth-focused sectors like tech and communications are weighing on the S&P 500, which has fallen 1.5% year to date compared to a 5% gain for the Vanguard High Dividend Yield ETF.
The largest component of the Vanguard High Dividend Yield ETF is Broadcom (AVGO +0.34%), which yields only 0.7% -- far from "high-yield" territory.
But Broadcom just delivered a blowout report, with net revenue up 29% year over year and net income up 34%.
Here's why anchoring the Vanguard High Dividend Yield ETF with Broadcom is one of the many qualities that make the ETF a great buy in March.
Image source: Getty Images.
Broadcom's integral role in AI chips and hardware
Broadcom is a part of the Vanguard High Dividend Yield ETF because it was once a relatively stable semiconductor and networking company. It has also increased its dividend for 15 consecutive years and yielded well over 2% for most of the period from 2018 to the end of 2023.
But its acquisition of VMware in November 2023, paired with a boom in artificial intelligence (AI) chip and networking revenue, has transformed Broadcom's business. AI revenue is expected to make up around half of Broadcom's upcoming second-quarter fiscal 2026 revenue. And AI will soon become the majority of the overall business, as the company is guiding for $100 billion in fiscal 2027 AI chip revenue.
Hyperscalers are building custom chips to reduce costs and lower dependence on a single supplier. Broadcom designs specific AI chips for different functions, such as AI training versus inference. Its custom chips, paired with network and connectivity hardware -- including Broadcom Tomahawk switches and Jericho routers -- are tailored to maximize bandwidth for AI clusters. Despite these advantages, research by The Motley Fool shows that AI developers still build on Nvidia's CUDA software platform and buy large quantities of Nvidia GPUs.
Still, Broadcom's high margin, diversified business, and track record for boosting its dividend make it the perfect dividend stock to build a portfolio around.
NASDAQ: AVGO
Key Data Points
Generating passive income from quality companies
The Vanguard High Dividend Yield ETF is more about dividend growth than yield alone. And it won't kick a stock out just because the yield has gone down.
Like Broadcom, Walmart (WMT +0.81%) used to consistently yield over 2% pre-pandemic. But Walmart's yield has steadily fallen because the stock price has grown faster than its dividend growth, even though Walmart has increased its dividend for 53 consecutive years.
|
Holding |
Vanguard High Dividend Yield ETF Weighting |
Dividend Yield |
|---|---|---|
|
Broadcom |
7% |
0.7% |
|
JPMorgan Chase |
3.6% |
2% |
|
ExxonMobil |
2.7% |
2.7% |
|
Johnson & Johnson |
2.5% |
2.2% |
|
Walmart |
2.4% |
0.8% |
Data sources: Vanguard, YCharts.
As you can see in the table, the five largest holdings in the ETF span a variety of sectors, including technology (Broadcom), financials (JPMorgan Chase), energy (ExxonMobil), healthcare (Johnson & Johnson), and consumer staples (Walmart).
NYSEMKT: VYM
Key Data Points
Outside the top five holdings, no individual stock accounts for more than 2% of the fund. And with 562 total holdings, the fund is well diversified.
The fund has an ultra-low expense ratio of just 0.04% -- ensuring that fees don't weigh on performance.
With a 2.3% yield and a portfolio of quality companies led by Broadcom, the Vanguard High Dividend Yield ETF stands out as an excellent buy now.
