Generating Passive Income with Vanguard ETFs

Investing wisely in stocks or exchange-traded funds (ETFs) can provide opportunities for consistent and increasing passive income through dividends. ETFs are particularly appealing because they offer diversification by holding a collection of various stocks. A famed investor, Warren Buffett, has emphasized the importance of dividend growth, stating that some of his most successful investments were not just based on stock price increases, but on stocks he held for decades that continually provided growing dividends.

For those looking to invest, putting $50,000 evenly into three selected Vanguard ETFs could potentially yield nearly $2,000 in annual passive income.

Vanguard International High Dividend Yield Index Fund ETF — 4.68% yield

The Vanguard International High Dividend Yield ETF (VYMI) aims to provide exposure to international stocks with above-average dividend yields. Over the past five years, the ETF has returned approximately 11%, which is relatively low in comparison to the overall market due to the success of U.S. stocks and the lack of favor for international stocks. The fund's portfolio includes prominent companies such as:

1. Toyota Motor — 1.75%
2. Nestle SA — 1.63%
3. Roche Holdings — 1.55%
4. Novartis — 1.51%
5. Shell — 1.50%
6. HSBC Holdings — 1.38%
7. Royal Bank of Canada — 1.32%
8. Commonwealth Bank of Australia — 1.23%
9. Siemens AG — 1.12%
10. Unilever — 1.08%

Many bank stocks are included in this ETF, which may benefit from a steepening yield curve. Investors speculate that as U.S. stocks appear overvalued, it may be prudent to explore international investments. Analysts suggest some overseas markets are at a turning point, potentially leading to better performance.

Vanguard Real Estate ETF — 3.77% yield

Real estate investments often provide attractive dividends, hence the Vanguard Real Estate ETF (VNQ) offers a robust yield of 3.77%. The ETF primarily invests in real estate investment trusts (REITs) that manage a variety of properties. As REITs distribute over 90% of their income as dividends, this ETF is designed for passive income generation, which is reflected in its modest returns over the past five to ten years. Key holdings in the fund include:

1. Vanguard Real Estate II Index Fund Institutional Plus Shares — 13.94%
2. Prologis — 5.84%
3. Equinix — 5.19%
4. American Tower — 5.11%
5. Welltower — 4.55%
6. Digital Realty Trust — 3.46%
7. Simon Property Group — 3.35%
8. Public Storage — 2.81%
9. Realty Income — 2.77%
10. CBRE Group Inc. Class A — 2.40%

Concerns have surfaced regarding commercial real estate, particularly in sectors like hotels and offices, which have struggled due to the pandemic and remote working. The ETF maintains a significant portion invested in retail REITs while also securing stakes in healthcare and data center REITs, both of which are expected to grow.

Vanguard FTSE All-World Ex-US Small-Cap Index ETF — 3.4% yield

The Vanguard FTSE All-World Ex-US Small-Cap Index ETF (VSS) targets international small-cap stocks, with about 31% of its focus on small caps in Europe and nearly 30% on small caps elsewhere. As with the previous funds, returns have not been significant lately, which is typical for international and small-cap stocks. Notable holdings in this ETF comprise:

1. WSP Global — 0.70%
2. RB Global — 0.53%
3. Kinross Gold — 0.36%
4. Emera — 0.35%
5. ARC Resources — 0.35%
6. TFI International — 0.34%
7. Celestica — 0.34%
8. Descartes Systems Group — 0.31%
9. AtkinsRealis Group — 0.30%
10. GFL Environmental — 0.29%

Investing in small-cap international stocks may come with higher volatility; however, this ETF owns over 3,300 stocks across more than 46 countries. Potential economic recovery in emerging markets could enhance their performance. While dividends can fluctuate, they have the potential to rise as markets improve.

investing, dividends, ETFs