1 Dividend ETF That Could Turn $500 Monthly Into a $725,000 Portfolio That Pays $21,750 Annually
Key Points
The Vanguard High Dividend Yield ETF consists of companies with a history of paying above-average dividends.
VYM has averaged around 11.4% annual total returns and a 3% dividend yield over the past decade.
VYM is more diversified than many other popular dividend ETFs.
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How does this sound: an investment valued at $725,000 and providing $21,750 annually in passive income? Pretty good, I'd say. How about accomplishing that with as little as $500 invested per month? Even better, I'd assume. Well, there's a dividend exchange-traded fund (ETF) that has shown it can make it happen if it continues on its recent trajectory: Vanguard High Dividend Yield ETF (NYSEMKT: VYM).
Nothing is guaranteed in the stock market, but VYM is led by high-quality companies that have stood the test of time and have shown to be reliable dividend payers. With a little patience, VYM could be a productive piece of your portfolio.
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A dividend ETF that covers a lot of ground
VYM's name says it all: a dividend ETF focused on high-yield stocks. To be included in VYM, a company must have a history of paying above-average dividends. Because of its rather loose criteria, VYM is more well-rounded sector-wise compared to other popular dividend ETFs.
- Financials: 19.4%
- Industrials: 13.8%
- Healthcare: 12.9%
- Technology: 12.3%
- Consumer Discretionary: 10.1%
- Energy: 9.6%
- Consumer Staples: 9.4%
- Utilities: 6.5%
- Telecommunications: 3.7%
- Basic Materials: 2.3%
In these sectors, there are plenty of industry leaders that have been paying and growing their dividends for a while, too. VYM's top five holdings are Broadcom, JPMorgan Chase, ExxonMobil, Johnson & Johnson, and Walmart. All of them being from different sectors is another testament to VYM's diversification.
With 559 stocks under its belt, VYM covers a lot of ground, ensuring you get exposure to a wide variety of industries and growth opportunities.
Performance that should make you optimistic for the future
Over the past decade, VYM has averaged just over 11.4% annual total returns. Past results don't guarantee future performance, but for the sake of illustration, let's assume it continues to average this over the long term. Here is roughly how much $500 monthly investments would grow to over the years:
| Years Invested | Investment Value | Annual Dividend Payout |
|---|---|---|
| 10 | $102,080 | $3,062 |
| 15 | $212,460 | $6,373 |
| 20 | $401,490 | $12,044 |
| 25 | $725,220 | $21,756 |
Table by author. Investment values are rounded down to the nearest 10 and account for VYM's 0.04% expense ratio.
VYM's average dividend yield in the past decade is also around 3%. If it were to maintain that average with the above investment values, the annual payout would top $21,000 at the 25-year mark.
I'm aware that there are many assumptions in this example, but the larger point is that consistency and compound earnings can work together to grow wealth and put you in a great position to have a dependable income source years down the road.
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JPMorgan Chase is an advertising partner of Motley Fool Money. Stefon Walters has positions in Walmart. The Motley Fool has positions in and recommends JPMorgan Chase, Vanguard High Dividend Yield ETF, and Walmart. The Motley Fool recommends Broadcom and Johnson & Johnson. The Motley Fool has a disclosure policy.
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