This ETF Could Generate Passive Income for Decades. Here Is Why You Should Consider Holding It Forever

Any time you're making money, it's a good thing. Any time you're making money passively without much effort, it's much better. The latter is always easier said than done, but dividends are a way virtually anyone can begin receiving passive income.

Dividend stocks can be a two-for-one benefit: Passive income, as well as the chance for your stocks' prices to appreciate. Ideally, both happen. But if a stock's price struggles, dividends still provide reliable income.

There are exchange-traded funds (ETFs) specifically designed to pay high dividends, but others focused on other objectives can also deliver impressive dividends. One of those is the Vanguard Total International Stock ETF (NASDAQ: VXUS). It's an ETF you can feel comfortable holding for the long haul, and one you should consider adding to your portfolio.

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VXUS can be an international one-stop shop

VXUS is a broad international ETF that covers about as much ground as you could want in a single ETF. It holds 8,794 stocks across both developed and emerging markets, giving you the relative stability and high-growth opportunities that typically come with them, respectively.

Here is how VXUS is divided by region:

• Europe: 37.5%
• Pacific: 26.9%
• Emerging Markets: 26.4%
• North America: 8.3%
• Middle East: 0.9%

Investing in international stocks can often be riskier due to geopolitics, currency fluctuations, and differing regulations and standards. Instead of dealing with that, VXUS lets you invest in the international market as a whole. It doesn't contain every international stock, but the index it tracks, the FTSE Global All Cap ex US Index, covers 98% of the non-U.S. market.

The five most represented markets are Japan, the U.K., Canada, China, and Taiwan. While the tech sector controls much of the U.S. stock market right now (it's nearly a third of the S&P 500), the international markets have more companies in sectors like financials and industrials. This can be a good complement to the top-heavy big tech influence on U.S. markets.

An underrated dividend gem

VXUS focuses on international stocks, but it's also one of the more underrated ETFs for dividends in the market. At nearly 2.8%, VXUS' current yield is higher than popular dividend ETFs like the SPDR S&P Dividend ETF, Vanguard High Dividend Yield ETF, iShares Core Dividend Growth ETF, and Vanguard Dividend Appreciation ETF.

VXUS Dividend Yield data by YCharts.

Over the past decade, VXUS has averaged a 2.9% dividend yield, well above the S&P 500's 1.7% average over the same period. That's $29 annually per $1,000 invested in VXUS, which may seem small, but the power is in time and these dividends compounding.

Unless you have a lump sum to invest in VXUS, it's worth reinvesting dividends to buy more shares until you're ready to begin receiving cash payouts. We can't predict VXUS' dividend yield going forward, but I foresee it remaining comfortably above the S&P 500 average. You can't ask for a much better yield from a nearly 8,800-stock ETF.

Why you should consider holding VXUS forever

One of the first things many people learn about investing is the importance of diversification. People often think of diversifying as investing in companies from different industries or sizes, but it also involves investing in companies from different geographic regions.

I'm a firm believer that most people only need to invest most of their money in the S&P 500 to grow it over time. It checks many boxes and grows with the U.S. economy. The U.S. economy is far from flawless, but it's one of the best long-term bets you can make.

That said, having a small portion of your portfolio in international stocks can help provide a safety net when the U.S. economy or stock market is down. VXUS provides that and reliable passive income via its dividend.

Stefon Walters has positions in Vanguard Total International Stock ETF. The Motley Fool has positions in and recommends Vanguard Dividend Appreciation ETF and Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.