In recent news, the Vanguard High Dividend Yield ETF (NYSEARCA:VYM) has sparked discussions among investors regarding its attractiveness as an investment opportunity. Let's delve deeper into the factors influencing the decision-making process.
Performance Analysis
Since the last analysis, VYM has shown commendable returns, surpassing the Schwab U.S. Dividend Equity ETF (NYSEARCA:SCHD). However, when compared to the S&P 500, both VYM and SCHD have lagged behind.
Yield Spread Concerns
One key consideration is the negative yield spread between VYM and SCHD, with VYM offering only 3% in yield compared to the 3.6% yield provided by SCHD. This disparity, coupled with the historical dividend yield trends, raises questions about the investment attractiveness of VYM.
Opportunity Cost Evaluation
Entering into VYM involves an element of opportunity cost, particularly when compared to alternative investment opportunities offering more predictable yields and potential for higher dividend growth. The uncertain interest rate outlook further complicates the investment thesis for VYM, given its exposure to capital-intensive businesses with high debt levels.
Final Thoughts
While VYM aims to focus on high-yielding dividend names within the S&P 500 universe, the current scenario suggests a lack of clear advantage for investors. The continued underperformance in terms of yield and growth potential compared to other ETF options like SCHD raises doubts about the viability of VYM as a long-term investment choice.
In conclusion, the analysis highlights the challenges facing Vanguard High Dividend Yield ETF (NYSEARCA:VYM) and suggests a cautious approach towards considering this investment option.