Is VYM The Better Dividend Fund? | Vanguard's High Dividend Yield ETF Review

Can VYM protect you against a market crash? The answer may surprise you. Let's review Vanguard's High Dividend Yield ETF:
1 - How does VYM select the stocks it invests in? And is VYM’s portfolio really set up to be  defensive in a crisis?
2 - What is the track record of VYM? Has it historically delivered predictable and growing dividends? And what about total returns?
3 - Who might want to consider buying VYM? 

Transcript

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Can VYM protect you against a market crash? The answer may surprise you. Hello everyone and welcome back to Markets with Marcus and part 2 of our Dividend Fund mini series. In part 1 of our Dividend Fund mini-series last week, we spoke about SCHD, Schwab's US Dividend Equity ETF. I've linked that video below for those of you who might be interested. Today we'll be turning to VYM, Vanguard's High Dividend Yield ETF. VYM is a popular choice with quite a few of our VIP investment club members who are getting closer to or are already in retirement. And the reason for this is that VYM allows them to keep a foot in the market while potentially also generating a decent inflation-protected income stream for the long run. At the risk of generalizing, investors in VYM often have a long-term buy and hold strategy that prioritizes stability and predictability, what you would call a defensive strategy in the industry. But as we always say, there are no free lunches in finance, and it's important to understand the potential risk return balance that VYM offers and the trade-offs you're making. So, with that in mind, here are the three topics that we'll be covering today. 1. How does VYM select the stocks it invests in? And is VYM's portfolio really set up to be defensive in a crisis? 2. What is the track record of VYM? Has it historically delivered predictable and growing dividends? And what about total returns? And three, who might want to consider buying VYM? In this section, we'll also discuss whether we would personally buy VYM for the base part of our portfolio, which should help us sleep well at night through all the ups and downs of the market, or rather for the boost part of our portfolio that might give us more potential long-term growth but also show more short-term volatility. Let's get started. How does VYM select the stocks it invests in? And is VYM's portfolio really set up to be defensive in a crisis? Like any dividend fund, VYM tries to deliver the best of both the income and the gross world by picking stocks that are expected to pay stable and hopefully rising dividends going forward while delivering some capital growth on top. There's always a trade-off involved here though. As we mentioned in part 1 of our dividend fund miniseries, the companies that have paid the highest dividends have historically not been the ones that have grown the fastest. On the flip side though, if you pick more defensive dividend stocks, the hope is that they might be more stable than high-flying gross equities in a downturn. Remember that a dividend fund is still an equity fund and the shareholders remain fully exposed to all equity risks and the market cycle, both upwards and downwards. And dividends are never guaranteed. And it really can matter which dividend fund you choose. As we discussed in the last video, not all dividend funds are the same. Unlike for index funds on the S P 500, let's say, the largest dividend funds all follow their own index, which may result in very different portfolios. So let's take a closer look at how VYM, Vanguard's high dividend yield ETF, does it. VYM has total assets of 96.1 billion, which makes it the second largest dividend fund on the market. Charges are very moderate for basis points expenses per year and has been on the market since November 2006. It pays dividends four times per year, and its last price per share was about $160. Please note that all data in this video is as of June 12, 2026, unless indicated otherwise, and that past performance is not indicative of future results or outcomes. VYM follows the FTSE High Dividend Yield Index, which is based on the FTSE US All Cap Index that tracks all large, mid and small cap companies that are traded on an exchange in the US. The formula applied to this basis may be the simplest among the leading dividend funds. If we summarize it a bit, it has only two steps. In the first step, the index removes real estate investment trusts, reads, and not surprisingly, stocks that are not currently paying a dividend and or are not forecast to pay dividends over the next 12 months. They say that additional proprietary screens are also applied, but we couldn't find out what these are, so this remains a bit of a mystery. And in the second step, the FTSE High Dividend Yield Index sorts the remaining stocks by their one-year dividends per share forecasts divided by the underlying share price, essentially the estimated forward-looking one-year dividend yield, and invests into the top names in proportion to their investable market cap. This methodology gave VYM 605 equity holdings per end of May 2026, a multiple of the about 100 equity positions that Schwab's SCHT typically holds, for example. That said, at this point in time, the largest name by far that VYM owned was Broadcom, which surprised us, not only because a weight of 8.51% seems like a lot in a widely diversified portfolio, but also because Broadcom may be anything but a defensive stock of the type we might have expected in a dividend fund. Broadcom makes its money from customized AI chips, storage solutions for data centers, high-speed networking equipment, and more. And we would expect it to be exposed to a potential AI bubble andor market crash. JP Morgan Chase comes next on the list, already with a much smaller percentage of 3.14%, followed by ExxonMobil at 2.53%. The percentages go down very fast from here, and we can see that the number 10 oil firm Gevron is only 1.41% of the portfolio. In the bigger picture, VYM's portfolio overall looks less defensive than we might have anticipated. The two largest industries are cyclical financials with 19.6% of total holdings, and then technology at 16.9%. Only in third place can we find potentially more stable industrials with 13.9%, followed by healthcare at 11.7%, and energy at 9%. So let's see in the next section how this potentially somewhat surprising portfolio composition played out for VYM's shareholders in the past. What is the track record of VYM? Has it historically delivered predictable and growing dividends? And what about total returns? On this chart you can see that VYM's dividend per share has generally been trending upwards over its lifetime. In 2007, its first full year on the market, VYM paid $1.36 per share, which grew to $3.50 per share for 2025. A total growth of 257% over these 18 years. This translates into a compound annual growth rate of 5.38%, more than enough to compensate for inflation and even have a bit left over. However, it wasn't a completely smooth run of permanent growth. In 2009 and 2010, during the great financial crisis, dividends went down two years in a row. And over the last three full years, for 2023, 2024, and 2025, VYM's dividend per share has stayed basically flat. And this flat stretch from the past three years that you can see here has been continuing so far this year. VYM's first distribution for 2026 was 86.17 per share at the time of this taping on June 12, 2026. If we just multiplied the quarterly payout by 4, we would see $3.45 per share for the full year. This would again be almost the same as, or strictly speaking, even a bit less than, the $3.50 per share that VYM paid last year. The dividend numbers that we just discussed translate into a 30-day SEC yield of 2.23% and a TTM yield, a trailing 12-month distribution yield per morning star of 2.21%. Both distribution yields measure unrealized cash distributions, divided by the share price at the end of the last observation period. The only difference is that the 30-day SEC yield, as the name implies, takes the payouts, essentially the dividends, from the last 30 days and annualizes them, while the TTM yield uses the actual distributions over the past 12 months. And here we can see that 100% of VYM's dividends were classified as qualified dividends for taxation purposes in 2025. For investments held in a normal taxable brokerage account, qualified dividends may be taxed at the usually lower long-term capital gains tax rates and not at the full marginal income tax rates that apply to both non-qualified dividends and interest payment. As customary, please keep in mind that we are not tax advisors at Diamond Nestec. Always consult with your trusted tax advisor for your specific situation. But distribution yields, even if they might enjoy potentially favorable tax treatment, are only one side of the medal. An investor can make money from share price movements as well. So let's have a look at VYM's trailing total returns. The trailing total return tracks what an investor would have made from both dividends and capital gains or losses. So, had an investor bought VYM one year ago, his or her total return would have been 24.69%. Had an investor bought VYM five years ago, the trailing total return would have been 11.58% on an annualized basis. And had an investor bought VYM 10 years ago, the trailing total return would have been 11.85% on an annualized basis. As we can see from comparing the current distribution yields of about 2.2% with the much higher double-digit total returns over the past 10 years, most of VYM's returns did come from capital gains. And indeed, if we look at this chart, VYM's share price, the dark blue line, is up 131% over the past 10 years. This is quite respectable for an investment that is also meant to produce income. In comparison though, a gross-focused fund, such as Vanguard's SP 500 fund VOO, the light blue line, was up significantly more, with its share price climbing by 267% over the same period. So what are your thoughts on VYM at this point? Do you like its track record in terms of the balance between dividend payouts and total returns? Or are you more of an SCHD or perhaps VOO fan? Or would you rather lock in a potentially higher, guaranteed income for life with annuities or perhaps treasuries and other top-rated bonds? Drop a comment below and let me, Jen, and everyone else know. Or come on over and join our VIP Investment Club, where these conversations are happening every day amongst our safety-oriented but nonetheless yield-seeking members. Visit our website at www.diamondnestec.com and click on this yellow Private VIP Investment Club button to learn more and join us today. We've also linked everything below this video for your convenience. So now that you know how VYM selects the stocks it invests in and its historical track record, let's keep going with the next part of today's discussion. Who might want to consider buying VYM? In our mind, VYM is not for everyone. Like other dividend funds, it is neither pure growth nor pure income, but has a very specific risk profile that stems from the trade-offs required to combine both objectives into one investment. And we personally don't own VYM nor any other dividend funds currently. We are still very much in the growth phase, with a sufficiently long time horizon that should allow us to write out any volatility and setbacks in our SP 500 funds and similar investments. That said, we could see an investment case for VYM for someone in our community who likes to keep a foot in the market for the potential future growth upside while also generating a not stellar, but decent and inflation-protected income stream for the long run. However, in our mind, VYM is not for the base part of a portfolio. Remember that the base part of a portfolio should mainly be oriented towards safe, stable, and predictable income that lasts a lifetime. And VYM does not fit that bill here. Rather, we would place VYM in the boost part of a portfolio. And even then, you should be comfortable with three aspects of VYM before investing in it. 1. You need to accept the specific trade-offs compared to more focused funds with a similar risk profile. For example, VYM's distribution yield in the 2.2% range is less than the 3.2% distribution yield that we discussed for Schwab's dividend fund SCHD last week. At the same time, Bangart's own SP 500 fund VOO delivered 260% share price growth over the past 10 years versus only 131% for VYM, as we discussed before. 2. Dividend income is not guaranteed. You might use VYM to supplement your retirement income in the boost part of your portfolio, for example. And as we'd also touched upon earlier. Ultimately though, VYM cannot guarantee you a stable, predictable lifelong income stream to cover your essential living expenses in retirement. Only annuities and alladders with MIGA, CDs, Treasuries, or similarly safe bonds in the base part of your portfolio can do that. 3. VYM in particular may not be as defensive as some might think. Now, VYM was only launched in late 2006 and it missed the internet bubble and crash of 2000. But let's look at its share price during the biggest stress test it had so far, the Great Financial Crisis between October 2007 and February 2013. And we'll compare VYM's performance against Vanguard's SP 500 fund VFIAX. VFIAX is basically the same fund as VOO, with the only difference being that VFIAX has been around since 2000 as a mutual fund, whereas VOO is wrapped as an ETF and only began trading in 2010, after the great financial crisis had already begun. We can see on this chart that at the very depth of the crisis, when the market bottomed out in early 2009, VYM's share price, the dark blue line, fell even a little bit deeper than VFIAX Assan SP 500 fund, the purple line here. And not only did VYM fall deeper, it also took longer to recover. So VYM would not necessarily have stabilized the portfolio during this time with its share price. And it was the same or even worse during COVID. Between December 2019 and July 2020, VYM, the dark blue line again, fell deeper and did not really recover as fast as VFIAX, the purple line again. Now we didn't run a full historical analysis of VFIAX and VYM, but part of the explanation for the surprising volatility of VYM during these two crises seems to have been that VYM's underlying index can often be very financials heavy, and banks and other financial institutions were hit very hard in both the great financial crisis and during COVID. Of course, past performance is not indicative of future outcomes, but the potential issue is that this hasn't changed. As we discussed in the first section of today's video, financials are still the largest industry in VYM's portfolio. In the meantime though, VYM has also added enough technology exposure to make it its second largest industry. And if you're worried about a potential AI bubble, this may or may not help you sleep well at night. Everyone's financial journey is different though, as we always say, and you need to make the decision that's right for you. And it's not all or nothing here. VYM may still play a role in an overall well-diversified portfolio. So I hope you enjoyed part two of our dividend fund mini-series. And if at this point you're interested in joining our daily member conversations and regular deep dives into other potentially higher yielding investment opportunities, come on over and check out our VIP Investment Club. Visit our website at www.diamondnestec.com and click on this yellow private VIP Investment Club button to learn more and join us today. We've also linked everything below this video for your convenience. And drop a comment below and let our Diamond Nestec community know what you are buying right now and what ETFs would you be interested in learning more about. Thanks for watching, and I'll be back.