Given the market volatility this year, there are likely investors out there who would prefer an investment strategy that avoids some of the stressful market swings that have started to become the norm. After all, the broader benchmark S&P 500 index has already experienced multiple swings of nearly 20% both up and down, enough activity to make anyone's stomach churn.
One way to avoid some of the stress in today's market is to diversify your investments across a broad basket of stocks through an exchange-traded fund (ETF). It's even better if you find an ETF that can generate passive income because then you are still making money each quarter and every year with much more predictability.
Here's one high-yield Vanguard ETF that is a no-brainer for passive income.
This ETF has real energy
The energy sector hasn't exactly crushed it this year. Many experts expect global oil prices to remain soft on weak demand, while the Organization of the Petroleum Exporting Countries (OPEC) moves to increase production, which will increase supply.
Image source: Getty Images.
However, the Vanguard Energy ETF (VDE 1.78%) is still trading up close to 125% over the last five years (as of June 10). The ETF has 112 stocks in it and controlled $8.1 billion in net assets at the end of April.
The fund's strong performance can be attributed mainly to the fact that ExxonMobil makes up nearly a quarter of its assets. The global oil and gas company has greatly improved operations over the last five years, controlling costs, generating strong returns on capital, growing free cash flow, and returning lots of capital to shareholders.
ExxonMobil is a strong dividend payer, and between dividends and share repurchases, it returned $140 billion in capital to shareholders between 2019 and 2024. The ETF's dividend yield is 3.27% and the fund has a five-year average yield of close to 3.7%.
Data by YCharts.
The three largest sectors in the ETF are integrated oil and gas (39.3%), oil and gas exploration and production (25.7%), and oil and gas storage and transportation (17%). Here are the fund's top 10 holdings and their weightings:
| Rank/Holding | ETF Weighting | Rank/Holding | ETF Weighting |
|---|---|---|---|
| 1. ExxonMobil | 24.45% | 6. Kinder Morgan | 3.00% |
| 2. Chevron | 13.29% | 7. Cheniere Energy | 2.99% |
| 3. ConocoPhillips | 6.61% | 8. Oneok | 2.91% |
| 4. Williams Companies | 4.06% | 8. Schlumberger | 2.59% |
| 5. EOG Resources | 3.55% | 10. Marathon Petroleum | 2.55% |
Source: Vanguard. Holdings are as of April 30, 2025.
A good dividend in an intriguing sector
Clearly, the Vanguard Energy ETF has a solid track record of paying a high-yielding dividend. I also think having some exposure to energy can serve investors well by acting as a hedge. While oil prices have been down, many of the world's richest investors, like Warren Buffett, are betting on energy prices going higher based on their latest stock purchases.
It's possible that these investors think the world will be more reliant on oil and gas in the future than many believe. They are finite assets, so wealthy investors may see advantages to owning large oil and gas assets.
According to the U.S. Energy Information Administration's International Energy Outlook report in 2023, global supplies of crude oil, other liquid hydrocarbons, and biofuels are expected to meet the world's demand for liquid fuels through 2050. Perhaps Buffett and other institutional investors betting on oil are taking the long view that supply could eventually become constrained.
Or perhaps they think the oil and gas companies are positioned to adopt renewable energy or other lower-carbon sources.
Regardless, energy stocks can be a decent hedge in a potential scenario when oil prices surge. The stocks in the Vanguard Energy ETF should benefit in this scenario, while rising prices could significantly increase costs for many other sectors.
