Vanguard is the second-largest U.S. issuer of exchange-traded funds (ETFs) in terms of assets. In terms of roster size, Vanguard is actually somewhat small when measured against its comparable rivals, but the fund giant does have some compelling options for income investors.
Income ETFs in the Vanguard stable run the gamut of domestic dividend stocks to foreign dividend payers to an expansive lineup of fixed income offerings. In other words, Vanguard income ETFs offer something for varying types of income investors. Some Vanguard income ETFs are well-established with lengthy track records and are among the largest ETFs in the U.S. Others are newer and just starting to attract a following among investors.
Perhaps not surprisingly, some of the best Vanguard ETFs are some of the illustrious Vanguard income ETFs. That group includes the following funds.
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Best High-Yield Vanguard ETFs: Vanguard High Dividend Yield ETF (VYM)
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Expense ratio: 0.08% per year, or $8 on a $10,000 investment.
12-Month Dividend Yield: 2.9%
The Vanguard High Dividend Yield ETF (NYSEARCA:VYM) is one of four Vanguard dividend ETFs and one of the largest U.S. dividend ETFs from any issuer. It is also one of the least expensive, as it charges just 0.08% per year, making it 92% cheaper than the average price of competing strategies.
VYM tracks the FTSE High Dividend Yield Index, but this Vanguard ETF does not sport an excessively high dividend yield. VYM’s trailing 12-month dividend yield is just under 3%. That is better than what income investors will find on the S&P 500 or 10-year Treasuries, but not so high as to be a cause for concern.
Aside from a 13.5% weight to consumer staples stocks, VYM is not over-allocated to other high-yield sectors. In fact, this Vanguard income ETF’s 14.3% weight to technology stocks and a combined 27.6% weight to healthcare and financial services names implies more of a dividend growth than high-yield feel.
Best High-Yield Vanguard ETFs: Vanguard Total Corporate Bond ETF (VTC)
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Expense ratio: 0.07%
12-Month Dividend Yield: This fund is less than a month old
The Vanguard Total Corporate Bond ETF (NASDAQ:VTC) is the newest addition to the lineup of Vanguard income ETFs. In fact, the Vanguard Total Corporate Bond ETF is the only ETF introduced by Vanguard this year.
VTC takes an ETF of ETFs approach, meaning its holdings are Vanguard’s other corporate bond ETFs — the Vanguard Short-Term Corporate Bond ETF (NASDAQ:VCSH), Vanguard Intermediate-Term Corporate Bond ETF (NASDAQ:VCIT) and Vanguard Long-Term Corporate Bond ETF (NASDAQ:VCLT).
“The ETF of ETFs structure enables the fund to immediately access more than 5,500 U.S. corporate bonds by taking advantage of the existing exposure and scale offered by the underlying ETFs,” according to Vanguard.
Although VCT debuted last week, it is already one of the cheapest corporate bond ETFs on the market today.
Best High-Yield Vanguard ETFs: Vanguard REIT ETF (VNQ)
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Expense ratio: 0.12%
12-Month Dividend Yield: 4.8%
The Vanguard REIT ETF (NYSEARCA:VNQ) is not just the largest REIT ETF in the U.S., but it is the largest sector ETF of any stripe. This high-yield Vanguard ETF does in fact deliver when it comes to yield, as highlighted by a trailing 12-month dividend yield of 4.8%.
Real estate investment trusts (REITs) are prized by income investors for the usually impressive yields. The rub is that high-yield sectors can be vulnerable to rising interest rates. For example, the Federal Reserve has raised rates twice this year, with all signs pointing to a third rate hike next month and VNQ is up just 4% year-to-date as a result.
The specter of higher interest rates has also made VNQ more volatile this year than the S&P 500. Still, investors remain partial to this Vanguard income ETF as highlighted by year-to-date inflows of more than $1.5 billion.
Best High-Yield Vanguard ETFs: Vanguard International Dividend Appreciation ETF (VIGI)
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Expense ratio: 0.25%
12-Month Dividend Yield: 1.7%
At just over a year and a half old, the Vanguard International Dividend Appreciation ETF (NASDAQ:VIGI) is one of the newer Vanguard income ETFs. VIGI is the international cousin to the Vanguard Dividend Appreciation ETF (NYSEARCA:VIG), the largest U.S. dividend ETF.
Not surprisingly, VIGI is off to a fast start. This Vanguard dividend ETF had nearly $748 million in assets under management at the end of the third quarter. Seasoned income investors know that international dividend payers often yield more than the comparable U.S. stocks, a point that underscores VIGI’s utility in income-generating portfolios.
VIGI holds 246 stocks, 22.5% of which are emerging markets names. Nearly 45% of this Vanguard dividend ETF’s holdings are European equities. Combine that with the decent emerging markets exposure, and income investors gain not only geographic diversity, but exposure to a host of markets with more attractive valuations than the U.S.
Best High-Yield Vanguard ETFs: Vanguard Tax-Exempt Bond ETF (VTEB)
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Expense Ratio: 0.09%
12-Month Dividend Yield: 1.9%
Prior to the debut of the aforementioned VTC, the Vanguard Tax-Exempt Bond ETF (NASDAQ:VTEB) was the newest bond fund in the Vanguard income ETF suite. VTEB is an ETF extension of Vanguard’s long-running tradition of municipal bond fund excellence. VTEB has become rapid hit with conservative income investors, a sentiment confirmed by the ETF’s $1.7 billion in assets under management.
VTEB holds over 3,500 municipal bonds and 76.2% of those holdings are rated AAA or AA. For that lower credit risk, income investors take on a lower yield with this Vanguard income ETF.
VTEB has an average duration of 5.9 years and a yield to maturity of 2%.
Best High-Yield Vanguard ETFs: Vanguard International High Dividend Yield ETF (VYMI)
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Expense ratio: 0.32%
12-Month Dividend Yield: 3.1%
Remember the aforementioned VYM? The Vanguard International High Dividend Yield ETF (NASDAQ:VYMI) is its international counterpart. VYMI tracks the FTSE All-World ex US High Dividend Yield Index, a benchmark designed to deliver exposure to international equities expected to sport above average dividend yields.
VYMI does an admirable job of being a legitimate equal to its domestic counterpart, in that this Vanguard dividend ETF’s yield is high enough to entice at 3.1%, but not so high as to be a cause for concern. Plus, its annual fee makes it 74% cheaper the average fees of rival funds.
VYMI holds over 900 stocks, a massive amount for any dividend ETF. This Vanguard dividend ETF’s holdings have a median market value of $52.8 billion and a price-to-earnings ratio of 14.4, indicating a steep discount to the S&P 500.
Best High-Yield Vanguard ETFs: Vanguard Emerging Markets Government Bond ETF (VWOB)
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Expense ratio: 0.32%
12-Month Dividend Yield: 4.6%
Many income investors are undoubtedly familiar with the piddly yields on developed markets sovereign debt. Moreover, assets such as Treasuries are vulnerable to developed market central banks raising interest rates.
The Vanguard Emerging Markets Government Bond ETF (NASDAQ:VWOB) is a Vanguard income ETF to consider right now for reasons beyond its 4.6% yield. Notably, only one emerging market, Mexico, has raised interest rates this year while several others have been cutting or are in position to lower borrowing costs. Those lower rates would drive the value of some of VWOB’s 1,035 holdings higher.
Nearly 55% of VWOB’s holdings are rated A or Baa. This Vanguard income ETF has an average duration of 6.4 years.
As of this writing, Todd Shriber owned shares of VNQ.
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