Why the Vanguard High Dividend Yield ETF (VYM) Could Be the ETF to Own in 2025

Key Points

• This ETF focuses on companies that are growing their earnings and dividends.

• It charges a low fee and is broadly diversified across the market with 580 stocks.

• Vanguard High Dividend Yield ETF should attract attention as interest rates decline.

• 10 stocks we like better than Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF ›

Investing in individual stocks is a great way to build wealth, but it's not for everyone. It takes a lot of time to do your due diligence, and it can be difficult to stick with your original thesis during market downturns.

It's also tempting to prematurely pick your flowers before they bloom. So if you don't want to do too much homework and want instant exposure to a well-diversified portfolio, it might be smart to invest in an exchange-traded fund (ETF).

Where to invest $1,000 right now? Our analyst team just revealed what they believe are the 10 best stocks to buy right now. Continue »

One of the most popular ETFs is the Vanguard High Dividend Yield ETF (NYSEMKT: VYM), which tracks the FTSE High Dividend Yield Index. It's invested in 580 stocks, and its top holdings include Broadcom, JPMorgan Chase, ExxonMobil, Walmart, and Johnson & Johnson. It could also be one of the best ETFs to own for five simple reasons.

Image source: Getty Images.

1. It provides both income and growth

The Vanguard High Dividend Yield ETF pays a 30-day SEC yield of 2.6%. That's lower than the 10-Year Treasury's 4.2% yield, but it's more than double the S&P 500's average yield of 1.2%.

Unlike other ETFs that pay higher dividends but trade sideways, this Vanguard fund tracks companies that are steadily growing their profits as well as their dividends. Over the past 10 years, its share price rose 115%, and it delivered a total return of 195%, including its reinvested dividends.

2. It charges low fees

The ETF charges an expense ratio of 0.06%, which is much lower than the average expense ratio of 0.14% for passively managed index ETFs. Many "high yield" dividend ETFs charge even higher expense ratios of 0.35% to 0.49%. That lower fee means you'll keep more of your gains.

3. It's a defensive play

The S&P 500 has risen 10% this year and currently hovers near its all-time high. But most of that rally was driven by the tech sector, which accounts for over a third of its market cap.

By comparison, the Vanguard High Dividend Yield ETF allocates only 12% of its portfolio to tech stocks, and it spreads its investments across other sectors. That diversification should make it a more defensive play than the Vanguard S&P 500 ETF, another popular fund, which passively tracks the S&P 500 for an even lower expense ratio of 0.03%.

Moreover, the S&P 500 looks historically expensive right now at 30 times earnings. With tariffs, geopolitical conflicts, and other challenges still hanging over the market, it wouldn't be surprising for the S&P 500 to pull back by the end of the year. If that happens, the Vanguard High Dividend Yield ETF might be a better defensive play.

4. It doesn't rely on REITs

Many income-focused ETFs invest in real estate investment trusts (REITs), which buy properties, rent them out, and distribute most of their rental income as dividends. REITs usually pay high yields, but they're also heavily exposed to interest rates swings.

When interest rates rise, it becomes more expensive to purchase new properties, while the resulting macro headwinds could erode their occupancy rates, profits, and dividends. By intentionally excluding REITs, the Vanguard High Dividend Yield ETF becomes a more reliable long-term investment.

5. Lower interest rates will boost its appeal

Last but not least, lower interest rates should drive more investors back to the ETF. It doesn't look attractive compared to the 10-Year Treasury right now, but that could quickly change once the Federal Reserve starts cutting its benchmark rates again.

We should remember that the 10-Year Treasury's yield was still below 2% in the first half of 2022, and we could return to those levels (or lower) once inflation is reined in. When that happens, funds like the Vanguard High Dividend Yield ETF -- which provide a balanced blend of growth, income, and stability for a low fee -- should attract a lot more attention again.

Should you invest $1,000 in Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF right now?

Before you buy stock in Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF, consider this:

The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard Whitehall Funds - Vanguard High Dividend Yield ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.

Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you’d have $651,599!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you’d have $1,067,639!*

Now, it’s worth noting Stock Advisor’s total average return is 1,049% — a market-crushing outperformance compared to 185% for the S&P 500. Don’t miss out on the latest top 10 list, available when you join Stock Advisor.

See the 10 stocks »

*Stock Advisor returns as of August 25, 2025

JPMorgan Chase is an advertising partner of Motley Fool Money. Leo Sun has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends JPMorgan Chase, Vanguard S&P 500 ETF, Vanguard Whitehall Funds-Vanguard High Dividend Yield ETF, and Walmart. The Motley Fool recommends Broadcom and Johnson & Johnson. The Motley Fool has a disclosure policy.