This analysis delves into three cost-effective exchange-traded funds, each designed to distribute earnings across a broad spectrum of assets. However, a closer inspection reveals that despite holding hundreds of companies, a single semiconductor industry leader can still exert a substantial influence on an investor's capital, sometimes more than anticipated.
The Vanguard High Dividend Yield ETF (VYM), as of its July 31, 2026, N-PORT submission, comprised 616 distinct positions. Notably, Broadcom constituted 7% of the fund's total net assets, illustrating that even widely diversified funds can have significant exposure to individual corporations. Alongside VYM, the iShares Core Dividend Growth ETF (DGRO) and the Vanguard Morningstar Value ETF (VTV) are explored. These three funds are recognized for their affordability and extensive holdings, yet they employ distinct stock selection strategies. DGRO prioritizes dividend growth, VYM targets high current yields, and VTV seeks undervalued assets, with its income generation being a secondary outcome of its valuation-driven approach.
DGRO employs a dividend growth index from Morningstar, incorporating only companies with a consistent history of increasing dividends. It systematically excludes stocks where the dividend yield falls within the top 10% of eligible investments, a mechanism designed to sidestep companies whose high yields might signal an impending dividend reduction. The fund's July 31, 2026, N-PORT filing indicated 394 positions, including futures contracts, with JPMorgan Chase and Broadcom each representing a 3% weighting. DGRO's expense ratio is 0.08%, the highest among the three, reflecting the cost associated with its growth-oriented screening. Its quarterly distributions fluctuate, with recent payouts showing an increase from June to September 2026, but a decrease from December 2025.
VYM tracks the FTSE High Dividend Yield Index, which identifies U.S. equities with above-average projected dividend yields, excluding Real Estate Investment Trusts (REITs). Holdings are weighted by market capitalization, explaining Broadcom's considerable allocation within the fund. Once a large company meets the yield criteria, its market size dictates its weight. As of the July filing, VYM's net assets totaled approximately $99 billion, with JPMorgan trailing Broadcom at a 4% weighting. The fund boasts a low expense ratio of 0.04%. VYM's income distributions are also subject to variation, with the September payout being lower than June's, and its trailing 12-month distributions amounting to $3.68 per share.
VTV mirrors a large-cap value index, which transitioned from CRSP to Morningstar in February 2026 without altering its construction methodology. This index ranks large companies based on various valuation metrics, such as book-to-price, forward earnings-to-price, and historical earnings-to-price. While dividend yield is a factor, companies without a dividend history can still qualify. Consequently, VTV's income relies on the underlying value stocks it holds, meaning it may include companies that reduce their dividends. VTV's portfolio is diversified across hundreds of large-cap value stocks, market-value weighted. Impressively, VTV has outperformed the other two funds year-to-date, with a 17% increase, compared to 13% for both DGRO and VYM. The September payout for VTV was $1.02 per share, a decrease from June.
The case of Broadcom perfectly illustrates how different fund structures can lead to varied exposures, even within broadly diversified portfolios. As of July 31, 2026, Broadcom represented 7% of VYM's net assets but only 3% of DGRO's. This disparity arises from their index construction: VYM’s market-value weighting grants larger companies like Broadcom a more significant share, whereas DGRO's growth screening and weighting approach mitigate the dominance of any single entity. This means a decline in Broadcom's share price would impact VYM significantly more than DGRO, despite investors often choosing VYM for stable income. These weightings are dynamic and subject to change with market fluctuations, necessitating regular review of each fund's current holdings.
While a diversified portfolio of hundreds of stocks significantly reduces the impact of a single company's dividend cut on overall payouts, the concentration of a few holdings can still create oversized exposure. VYM's July filing, for example, showed one company at 7%, with most others below 1%. DGRO's weights are more evenly distributed. VTV, which weights by market value, naturally gives more prominence to its largest value stocks. The distribution of capital across holdings is more crucial for income stability than the sheer number of holdings. Furthermore, an unusually high yield in any single holding often signals potential future dividend cuts.
Regarding fees, VTV is the most economical at 0.03%. VYM is moderately priced at 0.04%, while DGRO, reflecting its dividend-growth screening process, has the highest fee at 0.08%, though still competitive within the income product sector.
Each fund caters to different investor preferences: DGRO offers balanced exposure and focuses on consistent dividend increases. VYM appeals to investors seeking higher current income, accepting a larger stake in companies like Broadcom. VTV is suited for those prioritizing low fees and valuation-driven investments. Investors are advised to monitor the quarterly distributions and holding reports of these funds, particularly the weight of Broadcom in VYM, to align with their investment objectives.
