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Wild stock market gyrations like those we are experiencing now tend to cause investors to flee to safer, more stable investments.
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The Vanguard High Dividend Yield ETF (VYM) offers a shelter from the storm by targeting solid, blue-chip stocks with above-average dividend yields.
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The S&P 500 is still down 8% so far this year, but it has regained all of the ground lost following President Trump’s sweeping tariffs that were announced earlier this month. The trade levies caused the market to crater over the course of two days, only to rebound sharply the next day.
The seesaw action by stocks since has left investors yearning for some stability and seemingly contradictory pronouncements by Trump over the weekend about whether he gave tech stocks a exemption from the tariffs only add to the confusion. A breakout performance by Magnificent Seven stocks at the market open on Monday, had mostly fizzled out by noon.
For investors hoping to find calm amid the chaos might want to consider the Vanguard High Dividend Yield ETF (NYSEARCA:VYM), an exchange-traded fund that holds over 500 stocks that tend to have above average dividend yields. With technology stocks representing just 10% of the portfolio’s total, it can offer some peace of mind in this volatile market.
High, but not the highest
What may strike some investors as curious is that its yield is not markedly high. Although the 2.7% yield is almost double the S&P 500’s 1.4% average, much lower than the SPDR Portfolio S&P 500 High Dividend ETF (NYSEARCA:SPYD) that currently yields 4.7% annually.
There are a couple of reasons for that. First, it seeks to track the performance of the FTSE High Dividend Yield Index, which is derived from the FTSE USA Index that selects the top half of dividend-paying stocks based on their expected dividend yield over the next 12 months. Second, it’s a more broad-based ETF whereas SPYD owns just the top 80 highest-yielding stocks in the S&P 500.
So VYM is a high-yield ETF compared to the market, but is moderate compared to more niche high-yield funds.
Built to last
What the Vanguard High Dividend Yield ETF offers is a portfolio of stable, blue-chip companies across diverse sectors, including, financials, industrials, healthcare, and consumer staples. As noted before, tech is a smaller component of the overall mix, though Broadcom (NASDAQ:AVGO) is its largest holding, followed by JPMorgan Chase (NYSE:JPM) and Exxon Mobil (NYSE:XOM)
By diversifying across industries, VYM avoids the risks associated with over-concentrating in industries, a common vulnerability in sector-specific funds during crashes. This is a feature, not a bug.
Its components are also market-cap-weighted, which has it lean into larger, more established firms that tend to have deeper access to financial resources compared to smaller, riskier companies, allowing them to better weather economic storms.
And because of its above-average yield, it provides ballast to your portfolio, giving investors a regular income stream when stock prices are taking a hit. Being sustainable, the dividends soften the blows that mark market unrest, and with a beta of 0.80, it is much less volatile than the broader market as a whole.
Dividend kings
Dividend stocks have proved to be stellar investments over time. Data from Wellington Management shows that high-yielding stocks have outperformed all other classes of stocks by a wide margin.
Since 1930, stocks with high, but not the highest yields, beat the S&P 500 70% of the time. And there was no decade when these stocks didn’t generate positive returns for investors, including during the Great Depression of the 1930s and the 2000s, when the tech wreck, and housing and financial markets crisis caused stocks to go nowhere.
VYM’s focus on stocks with consistent, above-average dividends aligns with this trend. It might not match the market’s highest highs, but it won’t test its lowest lows either.
Key takeaways
In turbulent markets, the Vanguard High Dividend Yield ETF stands out as a prudent choice for investors seeking a dependable anchor. Its broad exposure across stable, dividend-paying companies fosters resilience without chasing risky high yields.
Because of its cost-efficient structure (it has an expense ratio of just 0.06%), VYM aligns with cautious strategies, while positioning portfolios for long-term consistency. For those prioritizing endurance over flash, VYM offers a balanced path forward, complementing a disciplined investment approach in uncertain times.