Key Points
Dividend stocks can be powerful investments. Through compounding, they can grow a relatively modest investment into a much larger future nest egg.
Here’s a look at how much a $1,000 investment in the Vanguard High Dividend Yield ETF (NYSEMKT: VYM) could grow in 20 years if you never add another dollar.
Steadily growing in value
Dividend stocks in the S&P 500 have historically delivered an average annual total return of 9.2% over the last 50 years, according to data from Ned Davis Research and Hartford Funds. That’s more than double the return of non-dividend payers (4.2%).
The dividend-focused Vanguard High Dividend Yield ETF has delivered a slightly better performance, producing a 9.32% annualized total return since its inception in 2006. Using that historical return data, here’s how much this dividend ETF could grow a $1,000 investment in 20 years:
Data and chart by the author.
As that chart shows, VYM could grow a $1,000 investment to nearly $6,000 in 20 years at its historical rate of return. That’s almost a 500% total return during that period.
While past performance is no guarantee of future results, the Vanguard High Yield Dividend ETF is well-positioned to continue delivering strong annual total returns. It invests broadly in companies that pay above-average dividends. It currently holds over 600 stocks across nearly all sectors. That diversification helps reduce risk, while the fund’s collective dividend income should compound its value over the long term. It’s an excellent core ETF to buy and hold for those seeking a lower-risk way to grow their wealth.
Should you buy stock in Vanguard High Dividend Yield ETF right now?
Before you buy stock in Vanguard High Dividend Yield ETF, consider this:
The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Vanguard High Dividend Yield ETF wasn’t one of them. The 10 stocks that made the cut could produce monster returns in the coming years.
Consider when Netflix made this list on December 17, 2004… if you invested $1,000 at the time of our recommendation, you’d have $386,727!* Or when Nvidia made this list on April 15, 2005… if you invested $1,000 at the time of our recommendation, you’d have $1,232,139!*
Now, it’s worth noting Stock Advisor’s total average return is 906% — a market-crushing outperformance compared to 208% for the S&P 500. Don’t miss the latest top 10 list, available with Stock Advisor, and join an investing community built by individual investors for individual investors.
Matt DiLallo has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends Vanguard High Dividend Yield ETF. The Motley Fool has a disclosure policy.
