Dividend investors rely on the income that their investments produce, and many have turned to the Vanguard High Dividend Yield ETF (VYM 0.29%) as an easy way to invest in a diversified portfolio of high-yielding dividend stocks. Over the course of time, the Vanguard ETF has managed not only to deliver on its promise of paying healthy levels of dividend income, but also to increase its dividends over time. Below, we'll look more closely at the history of dividends that the Vanguard High Dividend Yield ETF has paid to its investors and whether the upward trend is likely to continue into the future.

Image source: Getty Images.

What has Vanguard High Dividend Yield ETF paid to investors in the past?

The Vanguard High Dividend Yield ETF acts like most dividend ETFs do, passing through all the dividend income that it collects from its holdings in the form of quarterly distributions. That presents a conundrum that some dividend investors have to get used to, because the timing of the dividend payments that the ETF receives from the companies in which it invests doesn't come in equal chunks throughout the year. Although many dividend stocks pay quarterly or monthly dividends that are roughly equal from quarter to quarter, others use an annual or semiannual payment schedule. That results in somewhat chunky income, and as you can see in the chart below, the result for Vanguard ETF investors is that the fund has seasonal spikes in its dividend payments.

VYM Dividend Chart

VYM Dividend data by YCharts.

When you look past the seasonal ups and downs, however, you can see that Vanguard High Dividend Yield ETF has generally seen an upward trend in the dividends it pays to its investors. That's generally been true since the ETFs creation in late 2006, with the exception of the financial crisis in 2008 and 2009. During that period, the ETF held dividends steady for three quarters in a row, but it then had to succumb to the fact that many companies suspended or reduced their quarterly payouts in order to conserve cash. In the end, it took nearly six years for the Vanguard ETF to get back to paying out as much in dividends as it had in the fourth quarter of 2007.

Why are the Vanguard ETF's dividends growing?

A couple of factors have produced the dividend growth that Vanguard High Dividend Yield ETF investors have seen over the years. First, the success of U.S. companies in generating higher profits has created a larger earnings base from which companies have decided on capital allocation strategies. Even if a company chooses to return the same percentage of earnings to shareholders as dividends, periods of earnings growth will result in the overall amount of dividend payments rising over time.

In addition, companies have generally become more favorably inclined toward using dividends to return capital to shareholders. Favorable tax rates for qualified dividends, which the bulk of the Vanguard ETF's holdings produce, make the double-taxation burden for companies and their shareholders less onerous. Moreover, with low interest rates prevailing in the bond market, investors have appreciated the willingness of companies that can afford to boost their dividend yields to do so. Over the past 12 months, the stocks in the S&P 500 have boosted their payout ratios from around 32% to more than 40%, according to research from FactSet, and that speaks to the popularity of dividends among investors.

Will the ETF's future dividends keep growing?

The Vanguard High Dividend Yield ETF hasn't been in existence long enough to have gone through an entire business cycle, so it's not entirely clear how it will respond to an economic downturn that's less severe than the 2008 recession and financial crisis. The bull market in stocks has definitely contributed to upward movement in dividend payments from the Vanguard ETF, so investors shouldn't count on straight-up performance forever.

Nevertheless, the Vanguard ETF is designed to seek out high-yielding dividend stocks in the market. As long as dividends remain popular and companies have the capacity to keep making payments, Vanguard High Dividend Yield will work to capture as much dividend income as it can while remaining prudent in line with its core investment principles.