Want Decades of Passive Income? Buy This ETF and Hold It Forever.

You don’t need to do anything extraordinary to create a solid stream of income with upside potential. There are some excellent low-cost exchange-traded funds, or ETFs, that specialize in dividend stocks.

One of my favorite dividend ETFs for long-term investors is the Vanguard High Dividend Yield ETF (NYSEMKT: VYM). As the name suggests, this ETF invests in stocks with above-average dividend yields, and it can be an excellent way to grow a passive income stream that can eventually provide you with worry-free income after you retire.

With that in mind, here’s an overview of this excellent ETF, and the surprising wealth-building power it has.

The Vanguard High Dividend Yield ETF tracks the FTSE High Dividend Yield Index, which is a weighted index of large-cap stocks with relatively high dividend yields.

As of the latest information from Vanguard, the fund owns 530 stocks and top holdings include Broadcom (NASDAQ: AVGO), JPMorgan Chase (NYSE: JPM), ExxonMobil (NYSE: XOM), and Walmart (NYSE: WMT), just to name a few. Of course, it’s impractical to list all of the fund’s stocks here, but the general idea is that these are large, well-established businesses that have stable cash flow. While it isn’t the most concentrated index fund, 26% of its assets are in its 10 largest stocks, with the top holding, Broadcom, making up 5.5% of the portfolio all by itself.

Like other Vanguard index funds, the Vanguard High Dividend Yield ETF has extremely low investment fees. Its 0.06% expense ratio means that for every $10,000 in fund assets, you’ll pay just $6 per year toward management and administrative expenses. (This isn’t a fee you have to pay. It will simply be reflected in the ETF’s performance over time.)

Because this ETF collects dividends from more than 500 stocks and passes them through to investors, its payout can be somewhat unpredictable, but the general direction should be up over time. As of this writing, the Vanguard High Dividend Yield ETF has a 2.7% annual dividend yield and has a solid history of increasing its dividend over the long run, as the following chart shows.

Although past performance of any investment doesn’t guarantee its future results, the Vanguard High Dividend Yield ETF has generated 10.1% annualized total returns over the past decade, so don’t make the mistake of thinking that this is just a solid income investment. It can provide excellent growth over time, and if you reinvest your dividends, which is a solid strategy before you reach retirement, it can be a great wealth-building tool.