Key insights
- The article highlights the potential of Vanguard High Dividend Yield ETF (VYM) to generate substantial returns and passive income through consistent monthly investments. It emphasizes VYM's diversification across sectors and its focus on high-quality, dividend-paying companies. While acknowledging that past performance doesn't guarantee future results, the article suggests that VYM's historical returns and dividend yield could lead to significant portfolio growth and income over the long term, making it a potentially attractive option for investors seeking passive income.
How does this sound: an investment valued at $725,000 and providing $21,750 annually in passive income? Pretty good, I'd say. How about accomplishing that with as little as $500 invested per month? Even better, I'd assume. Well, there's a dividend exchange-traded fund (ETF) that has shown it can make it happen if it continues on its recent trajectory: Vanguard High Dividend Yield ETF (VYM +0.00%).
Nothing is guaranteed in the stock market, but VYM is led by high-quality companies that have stood the test of time and have shown to be reliable dividend payers. With a little patience, VYM could be a productive piece of your portfolio.
VYM's name says it all: a dividend ETF focused on high-yield stocks. To be included in VYM, a company must have a history of paying above-average dividends. Because of its rather loose criteria, VYM is more well-rounded sector-wise compared to other popular dividend ETFs.
In these sectors, there are plenty of industry leaders that have been paying and growing their dividends for a while, too. VYM's top five holdings are Broadcom, JPMorgan Chase, ExxonMobil, Johnson & Johnson, and Walmart. All of them being from different sectors is another testament to VYM's diversification.
With 559 stocks under its belt, VYM covers a lot of ground, ensuring you get exposure to a wide variety of industries and growth opportunities.
Over the past decade, VYM has averaged just over 11.4% annual total returns. Past results don't guarantee future performance, but for the sake of illustration, let's assume it continues to average this over the long term. Here is roughly how much $500 monthly investments would grow to over the years:
VYM's average dividend yield in the past decade is also around 3%. If it were to maintain that average with the above investment values, the annual payout would top $21,000 at the 25-year mark.
I'm aware that there are many assumptions in this example, but the larger point is that consistency and compound earnings can work together to grow wealth and put you in a great position to have a dependable income source years down the road.