VYMI: A Strong Buy On Dips With A 4.8% Yield

Vanguard International High Dividend Yield Index Fund ETF Shares (NASDAQ:VYMI) primarily invests in foreign large cap value stocks that offer a high-yielding dividend. Since many European stocks offer a higher yield than their U.S. counterparts, this fund has strong European exposure and an impressive yield of about 4.8%. There is a lot to like about this fund, including the fact that it has a low expense ratio of .22%, and it has generated solid returns of just over 8.5% annually since its inception in 2016. Let’s take a closer look:

The Chart

As the chart below shows, this fund has been in a strong uptrend since November 2023, and it is now trading near all-time highs. There has been a slight pullback recently, and I would wait for additional pullbacks to use as buying opportunities. The 50-day moving average is $69.29 and the 200-day moving average is $64.84. For new money to be invested here, I would buy on pullbacks to either one of these moving averages, and especially more aggressively at the lower 200-day moving average.

Top Ten Holdings

The top ten holdings for this fund reveals a number of well-known stocks. Below, there is a listing of some of the holdings:

What I like about this fund is that there are no oversized positions that create excess risk; this is because no position is equivalent to much more than 2%. This broad diversification gives investors peace of mind and allows the fund to invest in many companies and across multiple industries. This fund is invested in pharmaceuticals, financials, automakers, consumer staples, energy, industrials and more. Here is a more detailed look at some of my favorite stocks in VYMI’s portfolio:

Nestlé (OTCPK:NSRGY) is one of the world’s largest food companies. It has a wide range of many popular brands, including Buitoni (pasta), Coffee Mate, Carnation, Digiornio, Contrex, Fancy Feast, Gerber, KitKat, Nescafe, Perrier, Purina and many more. Food inflation and the rising popularity of weight loss drugs have caused some investor concerns in this stock, but longer term it is pretty hard to go wrong investing in a high-quality food producer, especially as the population grows globally and as more consumers in Third World countries join the middle class. This stock represents just over 2% of the portfolio holdings.

TotalEnergies (TTE) is one of my favorite oil stocks because it offers a high-yielding dividend, and it trades at a major discount to its peers in the U.S., which include Exxon (XOM) and Chevron (CVX). TotalEnergies trades for just about 8 times earnings, and it offers a yield of about 4.6%. AI data centers are expected to consume massive amounts of energy in the coming years, especially solar energy, which is also beneficial for this company since it has a large solar division. This stock represents just over 1% of the portfolio holdings.

Toyota Motor (TM) is one of the world’s largest and most popular car companies. It also owns the Lexus brand, and it has a wide range of hybrid vehicles, which have been popular with consumers that don’t want to have range anxiety. This company allegedly did not provide accurate safety information on some of the cars it makes and that has caused the stock to drop recently, but I think this is probably a buying opportunity. This stock represents just over 2% of the portfolio holdings.

ECB And U.S. Federal Reserve Policy Shifts Could Create Upside

The European Central Bank or “ECB” recently cut interest rates for the first time since 2019, and more rate cuts could follow in the coming months. The U.S. Federal Reserve is expected to follow this lead and cut rates perhaps later this year or next year. If interest rates decline globally in the next couple of years, that could make high yield dividend stocks more attractive to investors. The amount of cash parked in money market funds recently went to record levels of more than $6 trillion. When interest rates are cut, money market fund rates will drop and that could send a lot of investors into high yielding dividend stocks, and push prices higher for stocks like the ones VYMI has in its portfolio.

The Dividend

This fund pays a quarterly dividend of about $0.8644 per share. This offers a yield of around 4.80%. This yield is very attractive because it is close to what money market funds pay now, with yields of just over 5%. However the big difference is that when you buy into this fund, you can basically lock in this yield for the long term and potentially get attractive upside from capital gains. By contrast, investors who have parked their cash in money market funds could see a sharp drop in yields after the Federal Reserve cuts rates.

Potential Downside Risks

Of course, this fund has potential downside risks that come with investing in the stock market, and I believe that is the main risk. However, this fund is very well diversified, and it does not have any positions that are much more than 2% of the total portfolio holdings. This gives investors diversification and minimizes the downside that comes with investing in single stocks or in ETF’s that have out-sized positions. I believe the other potential risk is really opportunity cost. This fund is not going to surge like an AI stock, and it has not performed as well as many tech ETFs or growth stocks, so while the roughly 8.5% annual returns it has provided is very solid, you might be missing out on bigger total returns.

In Summary

I see VYMI as an ideal ETF to add to my portfolio, as it has offered solid total returns of about 8.5% since inception and with a yield of about 4.8%, it almost yields as much as most money market funds. However, money market yields are likely to drop over the next couple of years, and this fund could benefit from a drop in yields, as this will make high yielding dividend stocks more attractive to investors. I think this will result in capital gains, which along with the dividend yield, could lead to total returns that are above average in the coming years. I plan to add more shares of this ETF on any pullbacks, and hold it for the long term.

No guarantees or representations are made. Hawkinvest is not a registered investment advisor and does not provide specific investment advice. The information is for informational purposes only. You should always consult a financial advisor.

Editor’s Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.