High-yield dividend exchange-traded funds (ETFs) are great for anyone looking to improve the income generated by their portfolios.
But these funds come in all shapes and sizes
You really need to look at how the fund is constructed to understand whether it’s right for you. The Vanguard High Dividend Yield ETF (NYSEMKT: VYM) takes a rather generic approach. It starts with a wide universe of dividend-paying stocks and simply selects the top 50% of forward-looking yields for inclusion.
What you end up with is a portfolio of more than 600 stocks with a relatively modest 2.3% yield. That’s double the yield of the S&P 500 (SNPINDEX: ^GSPC), but it’s well below the 3%-4% yields currently being offered by many other ETFs in this category. The 2.3% yield makes it challenging to generate a lot of income from the Vanguard High Dividend Yield ETF.