VYM’s Index Buys on Forecast Yield, So It Held Intel and Walgreens Right Into Their Dividend Cuts
Source: 24/7 Wall St. ·
VYM's rulebook for picking stocks quietly funnels money into the exact corner of the market where dividend cuts tend to originate, and two of its recent holdings proved just how expensive that design flaw can get.
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VYM's rulebook for picking stocks quietly funnels money into the exact corner of the market where dividend cuts tend to originate, and two of its recent holdings proved just how expensive that design flaw can get. The ETF Examiner desk. Editor: Ryne Mauck . If you own the Vanguard High Dividend Yield ETF ( NYSEARCA:VYM ) for the income, you have already met the fund’s real cost. It is a rulebook that keeps buying stocks with the highest forecast yields, which is exactly the pool where dividend cuts hide. In the last cycle, that rulebook meant sitting inside Intel and Walgreens Boots Alliance right up to the moment each slashed its payout. What Your Yield Screen Is Actually Buying VYM tracks the FTSE High Dividend Yield Index, which ranks U.S. stocks by projected 12-month dividend yield and buys the top half by market cap. That single design choice is the hidden cost. When a stock’s price collapses because the market senses a payout is unsustainable, its forward yield spikes. The…