Robust retail sales, fueling concerns over interest rates and increasing risks of further bank downgrades, suggest that market volatility will persist in the foreseeable future. Given this backdrop, investing in Vanguard High Dividend Yield Index ETF (VYM) could serve as a buffer against market instability while ensuring a consistent income stream.

The July consumer price index (CPI) rose 3.2% year-over-year, accelerating from June's 3% annual increase. Additionally, the PPI, measuring wholesale prices, escalated 0.8% annually, surpassing the projected 0.7% rise and outpacing June’s upwardly revised increase of 0.2%. Also, monthly wages swelled 0.4%, culminating in a 4.4% year-over-year rise, beating the forecasts.

July’s retail sales rose 0.7% from the prior month, surpassing Wall Street's 0.4% estimate. This underscores the persistent resilience of American consumers.

Furthermore, Fitch slashed the U.S. government's credit rating by citing downward pressure on the country's sovereign debt rating, regulatory gaps centered on "monetary policy normalization," and the uncertain outlook for interest rates. Moody's had also downgraded the credit ratings of 10 U.S. banks in August while alerting major lenders of potential downgrades.

The difficulty of bringing inflation down to the Fed’s 2% target rate persists despite last year's easing. BMO Capital Markets’ senior economist, Sal Guatieri, said, "Still, a move to lower the current target range of 5.25%-5.50% is unlikely to begin until about June 2024 given the expected sluggish path of inflation back to the target."

Amid ongoing volatility, large-cap companies typically offer stability and predictable cash flows and display less volatility than medium and small-cap companies. In times like these, VYM, a fund offering investor access to dividends-paying large-cap companies, can provide a reliable investment option facilitating a steady income flow.

The ETF has gained 3.1% over the past three months and marginally intraday to close its last trading session at $106.87. It has a five-year beta of 0.79, indicating lesser volatility than the overall market.

Here are the factors that could influence VYM’s performance in the upcoming months:

Fund Stats

This ETF’s stocks have a $129.90 billion average market capitalization. As of August 18, VYM had $48.93 billion in AUM and a Net Asset Value (NAV) of $106.85. Its expense ratio of 0.06% is lower than the category average of 0.47%. VEA’s fund inflows reached $1.74 billion over the past year.

Top Holdings

VYM’s top sector is Financials, with 20.2% weight, followed by Consumer Staples, with 13.1% weight; health care, with 12.4% weight; Industrials, with 12.2% weight; and Energy, with 10.5% weight.

VYM’s top holdings include JPMorgan Chase & Co. (JPM), with a 3.30% weight; Johnson & Johnson (JNJ), with a 3.20% weight; Exxon Mobil Corp. (XOM), with a 3.11% weight; Procter & Gamble Co. (PG), with a 2.63% weight, and Broadcom Inc. (AVGO), with a 2.62% weight.

It has a total of 462 holdings currently, with its top 10 assets comprising 24.89% of its AUM.

Attractive Dividend

VYM has a trailing-12-month dividend of $3.34, which yields 3.12% on the current price. The fund has a four-year average yield of 3.11%. Its dividend payouts have increased at 4.1% and 6.1% CAGRs over the past three and five years, respectively. Moreover, the fund’s dividends have grown for 12 consecutive years.

POWR Ratings Reflect Promising Prospects

VYM’s solid fundamentals are reflected in its POWR Ratings. It has an overall A rating, which equates to a Strong Buy in our proprietary rating system. The POWR Ratings are calculated considering 118 different factors, with each factor weighted to an optimal degree.

The ETF’s recent price performance has earned it a grade A for Trade.

It has an A grade for Buy and Hold, consistent with the relatively safe margin between its current price and its 52-week high price of $113.78. It has a Peer grade of B.

VYM is ranked #3 of 87 stocks in the Large Cap Value ETFs category.

Click here to see the POWR Ratings for VYM.

View all the top stocks in the Large Cap Value ETFs group here.

Bottom Line

Large-cap firms traditionally function as reliable investment instruments for those seeking stability amid market unpredictability. The dividends further fortify this reliability, promising steady yields for investors.

VYM, possessing a diverse portfolio of holdings in well-established, profitable enterprises, has demonstrated a notable track record of substantial capital return to its investors and has immense potential to help investors navigate turbulent market scenarios.

How does Vanguard High Dividend Yield ETF (VYM) Stack up Against Its Peers?

VYM has an overall POWR Rating of A, which equates to a Strong Buy. Investors could also consider looking at its peers in the Large Cap Value ETFs category, Vanguard Value ETF (VTV), iShares Russell 1000 Value ETF (IWD), and Schwab US Dividend Equity ETF (SCHD).

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VYM shares rose $0.37 (+0.35%) in premarket trading Monday. Year-to-date, VYM has gained 0.63%, versus a 15.35% rise in the benchmark S&P 500 index during the same period.

The stock market dynamics sparked Sristi's interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy. Having earned a master's degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.

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