1 High-Yield Vanguard Dividend Fund to Buy Hand Over Fist

Key Points

• This Vanguard fund yields 4.2%, triple the S&P 500's payout, while delivering 26.6% total returns year-to-date, crushing the broader market's 10.8% gain.

• The fund's European and Asian dividend powerhouses like Nestle, HSBC, and Toyota offer both income stability and currency diversification away from an expensive U.S. market.

• At just 0.17% in annual fees, investors get exposure to 1,549 international dividend payers for less than the cost of a lunch at most fast food spots.

• 10 stocks we like better than Vanguard International High Dividend Yield ETF ›

Foreign dividend stocks just delivered the kind of returns that growth investors dream about. The Vanguard International High Dividend Yield ETF (NASDAQ: VYMI) has returned 26.6% year-to-date, more than doubling the S&P 500's 10.8% gain. And unlike your typical tech moonshot, it's paying you 4.2% annually just to hold it.

This isn't supposed to happen. High-yield dividend funds are supposed to be the tortoises in the investing race -- steady, reliable, boring. They're what retirees own, not what delivers market-crushing returns. Here's why most investors would still benefit from adding this top international dividend fund to their portfolio right now.

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The world's profit machines Americans overlook

Look inside this fund and you'll find the crown jewels of European and Asian business. Nestle represents 1.49% of the fund, running the world's largest food empire with 2,000 brands across 186 countries. HSBC Holdings sits at 1.45% of the fund's holdings, connecting Western finance to Asian growth through the world's seventh-largest bank. Shell and Novartis each command similarly small weights, delivering energy and pharmaceuticals to billions.

The geographic diversification tells the real story. This fund spreads across developed markets worldwide -- Europe's industrial champions, Asia's manufacturing giants, Australia's mining behemoths. Toyota Motor makes up 1.28% of holdings, still the world's most valuable automaker. Commonwealth Bank of Australia adds another 1.28%, riding Australia's commodity boom.

These aren't speculative growth stories. They're profit machines that have survived world wars, financial crises, and pandemics while consistently paying shareholders. The fund holds 1,549 stocks total, capturing virtually every meaningful dividend payer outside the United States. No single holding exceeds 1.5%, protecting against concentration risk.

Why boring beats exciting right now

The S&P 500 trades at 22 times forward earnings, near historical peaks. Meanwhile, international stocks trade at substantial discounts -- European equities at 13 times earnings, Japanese stocks at 15 times. This valuation gap hasn't been this wide since the dot-com bubble.

Currency dynamics amplify the opportunity. The U.S. dollar has strengthened significantly over the past decade, making foreign assets more affordable for American buyers. Any mean reversion in currency markets -- and currencies always mean revert eventually -- provides additional upside beyond the underlying stock returns.

The 4.2% yield changes the entire risk equation. While growth investors need their stocks to rise just to make money, investors in this international Vanguard dividend fund collect 4.2% annually regardless of price movement. That's 3.5 times the S&P 500's tiny 1.2% yield. In a world where 10-year Treasuries yield 4.3%, earning a similar income from a globally diversified equity portfolio capable of appreciating by 26.6% in a single year feels like a bargain.

The Vanguard advantage compounds everything

At a 0.17% expense ratio, Vanguard practically gives this fund away. That's $17 annually per $10,000 invested -- less than what McDonald's charges for a Big Mac combo meal in certain parts of California. Trying to replicate this portfolio yourself would require tracking 1,549 stocks across dozens of countries, dealing with foreign tax withholdings, and managing constant rebalancing -- a full-time job that would cost far more in time and complexity.

The fund automatically rebalances, maintaining its high-dividend focus while adapting to changing market conditions. When former dividend champions cut payouts, they're removed. When emerging dividend growers qualify, they're added. The ETF structure allows for in-kind redemptions that minimize taxable distributions. Foreign tax credits can offset some U.S. tax liability on international dividends.

The income play hiding in plain sight

A boring Vanguard fund holding boring foreign dividend stocks is quietly destroying the market's returns while paying you quarterly to wait. Yes, international stocks carry risks -- currency fluctuations, different regulatory environments, and slower-growth regions. But at 26.6% year-to-date returns with a 4.2% yield, the market is paying you extraordinarily well to take those risks.

The greatest opportunities often hide where no one's looking. Companies like Nestle, HSBC, and Toyota quietly compound wealth for shareholders as they have for generations. At today's valuation, yield, and minimal fee structure, the Vanguard International High Dividend Yield ETF offers something increasingly rare: obvious value that most investors ignore. The best investments aren't flashy. They're the dividend machines that quietly make you rich.

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HSBC Holdings is an advertising partner of Motley Fool Money. George Budwell has positions in HSBC Holdings, Toyota Motor, and Vanguard International High Dividend Yield ETF. The Motley Fool recommends HSBC Holdings and Nestlé. The Motley Fool has a disclosure policy.