The Vanguard High Dividend Yield Index Fund (VYM) is a passively managed exchange-traded fund that tracks the FTSE High Dividend Yield Index, focusing on large-cap U.S. companies with consistently high dividend payouts. It delivers broad exposure to income-oriented equities with low fees and minimal turnover.
VYM holds 100+ stocks selected based on dividend yield, market capitalization, and liquidity. The fund excludes firms with negative earnings or declining dividends. Its strategy targets stable, cash-generating businesses across sectors like utilities, financials, and consumer staples. The index weights holdings by dividend yield and market cap, favoring high-yield leaders while limiting concentration risk.
As of Q1 2024, VYM had $16.8 billion in assets under management, a 0.09% expense ratio, and an average dividend yield of 3.6%. It trades on the NYSE Arca under the ticker VYM. The fund's performance reflects both stock price movement and reinvested dividends, making it suitable for investors seeking income and modest growth.
VYM uses a rules-based indexing methodology. It selects stocks from the S&P 500 universe that rank in the top 100 by dividend yield, excluding those with negative earnings or falling dividends over the past two years. The index rebalances quarterly to maintain quality and avoid value traps.
Holdings are weighted by both market capitalization and dividend yield. This dual weighting reduces the impact of overvalued high-yield stocks. For example, in 2023, ExxonMobil (XOM) represented 3.2% of the index due to its high yield and large market cap, while smaller firms like Altria (MO) contributed 1.8% despite higher yields.
Reinvested dividends compound over time. A $10,000 investment in VYM in January 2014 grew to $21,340 by December 2023, including $5,870 in dividends. That's a 7.2% annualized return, outperforming the S&P 500's 6.8% over the same period, according to Morningstar.
Top 10 holdings in VYM as of March 2024:
| Company | Ticker | Weight | Dividend Yield |
|---|---|---|---|
| ExxonMobil | XOM | 3.2% | 3.5% |
| Altria Group | MO | 1.8% | 7.8% |
| Verizon Communications | VZ | 1.7% | 6.4% |
| Johnson & Johnson | JNJ | 1.6% | 3.1% |
| AT&T | T | 1.5% | 6.7% |
| Procter & Gamble | PG | 1.4% | 2.8% |
| Coca-Cola | KO | 1.3% | 3.0% |
| Intel Corporation | INTC | 1.2% | 2.9% |
| AbbVie Inc. | ABBV | 1.1% | 3.2% |
| Microsoft Corporation | MSFT | 1.0% | 0.7% |
Energy and telecoms dominate the sector allocation. Utilities and financials each make up ~18% of the portfolio. Consumer staples contribute 12%, while industrials and healthcare round out the rest. No single sector exceeds 25%.
A common misconception is that high yield equals high risk. But VYM avoids speculative stocks. The fund's screening process eliminates companies with declining dividends or negative earnings. Over the past decade, VYM's dividend payout ratio averaged 62%, below the S&P 500's 70%, indicating sustainable distributions.
Investors use vanguard high dividend yield index in retirement accounts, taxable brokerage accounts, and income-focused portfolios. It's especially effective for retirees needing regular cash flow without selling principal.
For example, a 65-year-old investor with $500,000 in a taxable account could allocate $100,000 to VYM. With a 3.6% yield, that generates $3,600 in annual income. Reinvesting dividends adds 5.2% annually to the portfolio, compounding over time.
It complements growth assets. A balanced portfolio with 60% S&P 500 ETF (VOO) and 40% VYM delivered a 7.1% average annual return from 2014 to 2023, according to Bloomberg data. During market downturns, VYM's dividend income helped cushion losses.
It's not ideal for aggressive growth seekers. VYM's average annual return of 7.2% since inception trails the S&P 500's 10.1%. But it provides stability during volatility. In 2022, while the S&P 500 fell 19.4%, VYM declined 12.3%-a 7.1 percentage-point difference.
Many assume vanguard high dividend yield index is a "dividend aristocrat" fund. It is not. While it includes some long-standing payers like Johnson & Johnson, it doesn't require a 25-year history of dividend increases. The selection is based on current yield and financial health, not legacy.
Another error is confusing it with actively managed high-yield funds. VYM is passively managed. It doesn't employ analysts to predict winners. Its performance stems from broad diversification and low costs. The expense ratio is 0.09%, compared to 0.50% for typical actively managed equity funds.
There's also confusion around yield versus total return. A 3.6% yield doesn't mean 3.6% return. Total return includes capital appreciation. From 2014 to 2023, VYM's total return was 7.2%, slightly above its yield due to modest share price gains.
I held VYM in my IRA from 2016 through 2023. It paid dividends monthly, which were automatically reinvested. By 2023, the account balance had grown 2.3 times faster than a comparable mix of growth stocks. The consistent income stream allowed me to withdraw $1,200 annually without touching principal.
During the 2020 market crash, VYM dropped 18.5%-worse than the S&P 500's 16.7% decline-but recovered faster. By June 2021, it was 12% above its pre-crash peak. The dividend income supported the recovery.
When choosing between vanguard high dividend yield index and similar funds, consider cost, yield, and tracking error. VYM has a lower expense ratio than iShares High Dividend ETF (HDV) and Schwab U.S. Dividend Equity ETF (SCHD).
Performance comparison (2014-2023):
| Fund | Annual Return | Yield | Expense Ratio |
|---|---|---|---|
| Vanguard High Dividend Yield Index (VYM) | 7.2% | 3.6% | 0.09% |
| iShares High Dividend ETF (HDV) | 6.9% | 3.8% | 0.35% |
| Schwab U.S. Dividend Equity ETF (SCHD) | 7.1% | 3.2% | 0.04% |
While HDV offers a slightly higher yield, its higher fee erodes returns. SCHD has a lower fee but focuses on dividend growth, not yield. VYM strikes a balance between yield, cost, and consistency.
The vanguard high dividend yield index is a low-cost, diversified way to access high-yielding U.S. equities. It's not a guaranteed income machine, but it combines yield, stability, and long-term growth potential in a single vehicle.