The High-Yielding Vanguard ETF That Belongs in Every Investor's Portfolio Right Now
Key Points
The Vanguard Utilities ETF pays an above-average yield of 2.8% right now.
By focusing on utility stocks, the ETF is a fairly safe investment to hang on to for the long haul.
It is a low-volatility investment that won't track the market closely.
Interest rates are rising, and there are growing concerns about whether the stock market may be overdue for a correction. There's been plenty of optimism around artificial intelligence (AI), and that's been driving valuations up in the process for many tech stocks. It has made investing in the stock market much riskier of late.
The good news is that there are safe options still out there. Exchange-traded funds (ETFs) can offer investors a good mix of stocks and balance out risk. One of the best ETFs to consider right now is one that I think can justifiably be in every investor's portfolio: the Vanguard Utilities ETF (NYSEMKT:VPU). Here's why this can be a no-brainer buy for the long haul.
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The ETF may not be flashy, but it can provide valuable stability
Over the past 12 months, the Vanguard Utilities ETF has declined by around 10%. It hasn't been a great buy. But the real value from owning this ETF is in the long term, and from its dividend income.
This is a low-volatility ETF that has averaged a beta of 0.44 over the past five years, meaning it won't track the market's wild fluctuations. And while it's down over the past year, in five years it has generated returns of around 22% -- and that's without factoring in its dividend.
At 2.8%, the ETF offers a higher dividend than the average stock in the S&P 500 index, which yields less than 1.1%. The extra dividend income from the fund can be valuable and boost its overall returns, particularly when the market isn't doing well.
In 2022, when the S&P 500 plummeted by 18% (when including dividends), the Vanguard Utilities ETF generated a total return of just over 1%. Although modest, it was still a positive return at a time when the stock market was in disarray.
The Vanguard Utilities ETF is worth hanging on to for the long haul
This is a type of fund that can act as a pillar for investors, where they can put the bulk of their money. By focusing on utility stocks, the fund isn't a risky option and can generate plenty of dividend income, giving investors an incentive to invest heavily.
Having the ETF as a pillar can then enable investors to take on a bit more risk with other, smaller investments, knowing that the Vanguard Utilities ETF will still keep the bulk of their money safe in the long run. Its gains may be modest, but with a solid dividend and a low expense ratio of 0.09%, this is an investment investors can simply buy and forget about.
David Jagielski, CPA has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.