While high-yield assets are generally expensive, Vanguard High Dividend Yield Index (VYM) is a fine holding that avoids gorging on the most overvalued sectors: real estate and utilities, a vice of more-aggressive high-yield strategies. By design the fund excludes real estate investment trusts, and its holdings are market-weighted, keeping its utilities allocation from growing big. The fund strikes a balance among market representation, yield, and quality. Its construction is straightforward: Each year it ranks stocks by their forward dividend yield according to consensus analyst estimates and includes the highest-yielding ones in its portfolio until 50% of the eligible universe's aggregate market capitalization is reached. VYM excludes stocks forecast to not pay a dividend in the coming year.
I've talked a lot about VYM's return on top of the stock market. But the U.S. stock market's returns will determine most of VYM's behavior. I've said this before, and I'll say it again: U.S. stocks are expensive. A reasonable way to estimate long-run returns is to sum current dividend yield with expected real per-share dividend growth. The market's dividend yield right now is 2%. There's also a hidden yield boost thanks to net share buybacks. Let's say 0.5%. Real per-share dividends have historically grown about 1.5%. So you're looking at a 4% expected real return, after inflation, over a decade-plus horizon. This simple analysis assumes the market's valuation multiple and profit margins stay constant. With interest rates so low and profits juiced by high margins, I think the market's long-term expected real return is lower than 4%. A 3% real expected return seems reasonable. Of course, there's a lot of uncertainty around this forecast.
Source: Morningstar
Related Articles:
- 12 Dividend Stocks With A Quick Payback
- 9 High-Rated Dividend Stocks With Above Target Returns
- 9 High-Yielding Utilities With A Growing Dividends
- My 5 Largest Dividend Stock Positions Have Double-Digit Lifetime Returns
- The Best Dividend Stocks In The World
The Right Reason to Buy Into Vanguard's Classic Dividend Strategy
Posted by D4L | Sunday, June 29, 2014 | ArticleLinks | 0 comments »________________________________________________________________
Subscribe to:
Post Comments (Atom)
~
Popular Posts Last 30 Days
-
As a relatively new blogger, the one thing that has stood out in my mind is the number of Canadian bloggers in the areas that I am most inte...
-
Long-term investors know that dividends can have a major impact on returns over time. When the stock market is struggling to make gains like...
-
We decided to go on a hunt for quality stocks that for one reason or another have been buried, and not just this year. We found three incred...
-
Buy and hold ... forever? It's a tall order, but a select few companies are potentially up to the task. You can build a wealth-compoundi...
-
Does the high interest rate environment we're living in have you feeling down? Here's something to remember that can help you turn t...
-
Essentially, we’re looking for more Apples – tech firms with a large market cap (at least $1-billion) and the financial means necessary to p...
-
Dividend stocks can be consistent market-beaters. However, empirical research shows that the best dividend stocks tend to generate better-th...
-
High-quality dividend stocks are always worth loading up on. This is doubly true for companies that offer shareholders an attractive mix of ...
-
Numerous high-quality dividend opportunities are up for grabs at the moment, which may be appealing to some investors given the uncertainty ...
-
Some dividend-paying companies have seen their financials struggle over the years. These companies become vulnerable to dividend cuts which ...
0 comments
Post a Comment
Post a Comment
Note: Only a member of this blog may post a comment.