Inflation is still above the Federal Reserve's 2% target despite easing. While interest rates are not expected to increase further this year, given a robust employment market, the likelihood of an interest rate cut is improbable.

Given the market's uncertainties, investing in Vanguard High Dividend Yield Index ETF (VYM) could be wise, as it can cushion your portfolio against market volatility and help generate a steady income stream.

The July consumer price index (CPI) rose 3.2% year-over-year, slightly accelerating from June's 3% annual increase. A price rise of 0.2% month-over-month in July adheres perfectly to the economist forecasts. However, PPI, which measures wholesale prices, rose 0.8% annually, higher than the forecasted 0.7% increase and outpacing June’s upwardly revised increase of 0.2%.

According to the Bureau of Labor Statistics data, the U.S. economy demonstrated long-term strength by adding 187,000 jobs in July. Monthly wages surged 0.4%, resulting in a 4.4% year-over-year rise, beating the forecasts.

According to the CME FedWatch Tool, markets are pricing about an 89% probability of a rate hike pause, despite these contradictory strands of data. Some experts advocate for this freeze in rate hikes, while others project the contrary, anticipating potential rate hikes in the coming months.

BMO Family Office's Chief Investment Officer, Carol Schleif, predicts the Fed to hold rates steady in September, but the robust job market could provide the Fed enough flexibility for another round of hikes.

Amid apparent ongoing volatility, VYM, which provides investors access to dividend-paying large-cap companies, could be a wise investment for generating a steady income stream.

The ETF has gained 5.4% over the past three months and 2.1% over the past month to close its last trading session at $108.87. It has a 24-month beta of 0.74, 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 $125.40 billion average market capitalization. As of August 11, VYM had $49.81 billion in AUM and a Net Asset Value (NAV) of $109.09. Its expense ratio of 0.06% is lower than the category average of 0.47%. VEA’s fund inflows reached $1.84 billion over the past year.

Top Holdings

VYM’s top sector is Financials, with 19.3% weight, followed by Consumer Staples, with 13.3% weight; health care, with 12.8% weight; Industrials, with 12.3% weight; and Energy, with 10.2% weight.

VYM’s top holdings include Exxon Mobil Corp. (XOM), with a 3.24% weight; Johnson & Johnson (JNJ), with a 3.20% weight; JPMorgan Chase & Co. (JPM), with a 3.16% weight, Procter & Gamble Co. (PG), with a 2.65% weight, and Broadcom Inc. (AVGO), with a 2.63% weight.

It has a total of 462 holdings currently, with its top 10 assets comprising 25.09% of its AUM.

Attractive Dividend

VYM has a trailing-12-month dividend of $3.34, which yields 3.06% 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 dividend has 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 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. Its recent price performance has earned it a grade A for Trade. 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 companies typically serve as a sturdy vehicle for investors navigating through market volatility. Dividends provide an extra shield, assuring consistent returns for investors.

VYM, with an extensive portfolio of holdings in established and lucrative businesses, known for its excellent history of capital return to shareholders, has the potential to help investors survive uncertain market conditions.

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 fell $0.78 (-0.72%) in premarket trading Tuesday. Year-to-date, VYM has gained 1.43%, versus a 17.40% 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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