VYM Is Beating the S&P 500 With a 17% Year-to-Date Return by Owning What Wall Street Won’t

The Vanguard High Dividend Yield ETF (NYSEARCA:VYM) is beating the S&P 500 this year by owning what the market has refused to bid up. Through August 19, VYM has returned 17% year-to-date, compared with 13% for the S&P 500. The fund trades at a forward earnings multiple around 16 while the index sits closer to 23, and that gap is doing the work.

VYM’s mechanical yield screen excludes companies with below-average payouts, which removes most of the megacap AI complex before the portfolio is even built. A holder gets the 2026 value rotation without paying growth multiples.

Treat this primarily as a valuation story. The question is what you’re buying when you buy a mechanical yield screen at a discount to the index, and whether that discount is earned or is opportunity.

Why the Yield Screen Doubles as a Valuation Filter

Vanguard sorts the FTSE High Dividend Yield Index by yield and takes the top half. Companies that reinvest rather than pay dividends fall out, which removes most AI names before the portfolio is even weighted.

The screen captures yield, though it functions equally well as a valuation filter. A company can only carry an above-market yield if its price is compressed relative to its dividend, and dividends come from mature, cash-generative businesses that tend to trade at the cheapest valuations.

That is how VYM lands at a forward P/E near 16x, compared with the S&P 500’s roughly 23x. The gap is unusually wide, reflecting how much index weight has migrated into a small group of AI leaders whose valuations depend on defending future growth.

Broadcom (NASDAQ:AVGO | AVGO Price Prediction) is the one large exception at 8% of assets, while the rest of the top holdings are Exxon (NYSE:XOM), Johnson & Johnson (NYSE:JNJ), AbbVie (NYSE:ABBV), Chevron (NYSE:CVX), JPMorgan (NYSE:JPM), and Coca-Cola (NYSE:KO). Those are single-digit and low-teens multiples, and they are why the fund is winning right now. Several of them also carry 50-plus-year dividend growth streaks, the same club we ranked by valuation in a free Dividend Kings report.

What the Lead Actually Costs Over a Full Cycle

The 2026 lead needs context. Over ten years, VYM returned 207% while the S&P 500 returned 252%, so a decade of dividend indexing left investors well behind the broad index.

That gap was earned. A portfolio with no Nvidia in size, minimal Microsoft, and no Meta was always going to trail an index that leaned harder into those names each year.

Over five years, the picture is closer, with VYM up 79% against the index’s 73%, because the rotation began in 2022 and has largely held. The trailing-12-month distribution of $3.63 on a $165 share adds real cash flow on top, though the payout is not the reason to own the fund.

Vanguard cut the expense ratio to 4 basis points in February, which, for a $94.6 billion fund, means investors essentially keep all of any valuation reversion. VYM beats the index when the cheapest half of large-cap America outperforms the most expensive quarter, and that is exactly what is happening now.

Who VYM Fits and Who Should Look Elsewhere

VYM fits an investor who wants US large-cap exposure but has decided to own the cheaper half of the market instead of the concentrated top of the S&P 500. That is a portfolio decision taken through a rules-based vehicle at four basis points.

It does not fit an investor whose primary goal is spendable income. The quarterly distribution is irregular, most recently $0.9795 against $0.8617 the prior quarter, and the yield sits well below the 10-year Treasury at 5%.

It also does not fit anyone who believes the AI capex cycle will continue to drive index returns for years. If Broadcom’s weight is your entirety of AI exposure, you are effectively betting against the trade that has defined the market since 2023.

The discount VYM trades at is earned in the sense that the fund will trail if growth resumes leading. It is an opportunity in the sense that owning large-cap America at 16 times forward earnings is defensible when the alternative trades at 23 and requires execution to justify it.

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