Published Thu, 12 Oct 2017 09:08:03 -0400 on Seeking Alpha
I like dividends and I assume you do as well if you are reading this article. I am not here to dispute dividend vs. non-dividend paying stocks or funds. The question I want an answer to is this: is Vanguard's market-cap weighting approach in the High Dividend Yield ETF (VYM) helpful or harmful to dividend investors? Is this the best way to invest in dividend stocks?
First, let us look at why some prefer market-cap weighting funds and then discuss its hidden implications.
Market-Cap Weighting Advantages Very little management Weighting by market-cap is a passive strategy. Once you make your initial purchase you don't need to do much else. As prices go up in one stock, the portfolio will naturally become more heavily weighted in that security. The very low management fees of the fund should reflect this.
High liquidity There is a strong correlation between size and liquidity. Thus, it is more efficient from a transaction cost point-of-view to buy larger amounts of liquid stock. Of course, because the stock isn't actively managed, you should not need to buy and sell very often.
There might be other reasons why people prefer a market-cap weighted fund. Perhaps they feel that bigger is safer and these companies are 'too big to fail'. Also, they may be in a better position to weather an economic storm. Yet another reason could be that some larger stocks may have lower volatility than thinly traded stocks. But I believe the biggest reason likely... Read more
|Stock name||Last trade||P/E||Earnings/Share||Dividend/Share||Dividend yield|
|VANGUARD HIGH DIVIDEND YIELD ETF||82.48||0.0||0.00||0.00||2.92|
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