Investing $50,000 in These 3 High-Yield Vanguard ETFs for Passive Income
Investors should recognize the potential benefits of investing in stocks or exchange-traded funds (ETFs) that offer strong dividend yields. High-dividend ETFs can provide a reliable source of passive income over time. By investing in a selection of ETFs, investors benefit from diversification, as these funds typically hold a range of stocks. Legendary investor Warren Buffett has emphasized that significant investment gains have often come not just from stock price increases but also from holding dividend-paying stocks for long periods, like Coca-Cola and American Express. For investors looking to generate income, a $50,000 investment evenly spread across three selected Vanguard ETFs could yield nearly $2,000 in passive income each year.
Vanguard International High Dividend Yield Index Fund ETF -- 4.68% Yield
The Vanguard International High Dividend Yield ETF (VYMI) provides access to a variety of international stocks that typically pay above-average dividends. Although this ETF has delivered a return of around 11% over the last five years, it has underperformed compared to the overall market, primarily due to the stronger performance of U.S. stocks in recent years. Below are some of the top holdings of the Vanguard International High Dividend Yield ETF:
- Toyota Motor -- 1.75%
- Nestle SA -- 1.63%
- Roche Holdings -- 1.55%
- Novartis -- 1.51%
- Shell -- 1.50%
- HSBC Holdings -- 1.38%
- Royal Bank of Canada -- 1.32%
- Commonwealth Bank of Australia -- 1.23%
- Siemens AG -- 1.12%
- Unilever -- 1.08%
Many bank stocks make up this ETF, which have not benefitted from the recent bull market. However, as interest rates rise, these bank stocks could perform more favorably. Some analysts believe that with U.S. stocks becoming pricey, it may be beneficial to invest in international markets, which could provide better growth opportunities in the future.
Vanguard Real Estate ETF -- 3.77% Yield
The Vanguard Real Estate ETF (VNQ) focuses on real estate stocks and real estate investment trusts (REITs), which are known for their substantial dividends. This ETF has an attractive yield of 3.77% and aims to provide financial gain through passive income. While the performance of this ETF has been modest over the past several years, it's essential to note that REITs distribute over 90% of their taxable income to shareholders. Here are the top 10 holdings in the Vanguard Real Estate ETF:
- Vanguard Real Estate II Index Fund Institutional Plus Shares -- 13.94%
- Prologis -- 5.84%
- Equinix -- 5.19%
- American Tower -- 5.11%
- Welltower -- 4.55%
- Digital Realty Trust -- 3.46%
- Simon Property Group -- 3.35%
- Public Storage -- 2.81%
- Realty Income -- 2.77%
- CBRE Group Inc. Class A -- 2.40%
Investors may be wary of commercial real estate due to changing market dynamics, particularly influenced by the pandemic. This ETF has the highest concentration in retail REITs, though significant stakes also exist in healthcare and data center sectors. Recent market analyses suggest that healthcare and data center REITs hold significant value compared to their net asset values, whereas hotel and office spaces are less favorable investments at this time.
Vanguard FTSE All-World Ex-US Small-Cap Index ETF -- 3.4% Yield
The Vanguard FTSE All-World Ex-US Small-Cap Index ETF (VSS) targets small-cap stocks from various international markets, making it distinct from the other two ETFs discussed. This fund allocates about 31% towards small-cap stocks in Europe, nearly 30% to regions outside of the U.S., and over 15% to small-cap stocks in North America. It’s worth noting that returns have been limited, reflecting challenges faced by international and small-cap stocks. The top holdings are as follows:
- WSP Global -- 0.70%
- RB Global -- 0.53%
- Kinross Gold -- 0.36%
- Emera -- 0.35%
- ARC Resources -- 0.35%
- TFI International -- 0.34%
- Celestica -- 0.34%
- Descartes Systems Group -- 0.31%
- AtkinsRealis Group -- 0.30%
- GFL Environmental -- 0.29%
While small-cap stocks can be more unpredictable, the ETF includes 3,300 stocks from 46 countries, potentially benefiting from future improvements in emerging markets and foreign economies.
Investing, ETFs, Income