This Dividend ETF Could Quietly Make You a Multi-Millionaire Over Time

THE Vanguard High Dividend Yield ETF (NYSEMKT:VYM) is one of the most popular dividend-focused exchange-traded funds (ETFs). It has $68.6 billion in assets under management (Assets under management), ranking it third among dividend-focused ETFs.

One of the factors behind the fund’s popularity is its returns over the years. This could quietly make you a multi-millionaire over time.

THE Vanguard High Dividend Yield ETF has been a solid performer over the years. The fund has generated an average annual return of 9% since its inception in 2006. Meanwhile, its returns have been even higher in recent years. The fund has generated an annualized return of more than 10% in each of the last one, three, five and ten year periods.

Investing $500 per month in the fund would grow to $2.1 million in about 40 years with a 9% annual rate of return. You could become a multi-millionaire even faster if you invested more money each month or if the fund offered a higher return. For example, investing $1,000 per month in the ETF would grow to nearly $2.7 million in 35 years at the fund’s 9% historical average rate of return. Meanwhile, a monthly investment of $500 would grow to over $2.1 million in 35 years with an average annual return of 11% (the fund has generated an average annual return of 11.3% over the past decade).

The Vanguard High Dividend Yield ETF has a very simple investment strategy. It aims to invest in stocks with above-average dividend yields. If this strategy aims above all to generate passive income for investors, dividend stocks have a proven track record of high yield total returns. According to data from Ned Davis Research and Hartford Funds, dividend-paying stocks have generated an average annual total return of 9.2% over the past 50 years, more than double the return of non-dividend-paying stocks (4.3%). Meanwhile, companies with higher rates dividend payout ratios (which also tend to be those with higher yields) have historically outperformed the market more often than those with lower payout ratios.

The Vanguard High Dividend Yield ETF allows you to invest broadly in higher dividend stocks. The fund currently holds 565 stocks across all sectors except real estate investment trusts (REIT). It enjoys the highest allocation to the largest companies with above-average dividend yields. Broadcom, JPMorgan Chase, ExxonMobil, Johnson & JohnsonAnd Walmart are currently its top five titles. These companies have historically paid sustainable and steadily increasing dividends. The fund’s focus on investing in higher dividend stocks positions it well to continue generating strong returns over the long term.