Would you like an income superior to the best-buy easy-access savings rate while also having the potential for capital gains? This is exactly what the Vanguard FTSE All-World High Dividend Yield ETF (VHYL) offers.

The £2.8 billion exchange-traded fund provides exposure to approximately 1,800 high yielding stocks across the developed world and emerging markets. The 12-month historical yield from the ETF is 3.7% which gives you an indication of the potential income stream on offer. Dividends are paid quarterly.

While that level of income is comparable to the FTSE 100 (3.6% prospective yield), you’re getting exposure to a much broader group of companies and geographies with the Vanguard ETF. The yield is certainly better than the 2.92% interest from the best paying easy access cash account as of 31 January, according to MoneySavingExpert data.

FE Fundinfo data shows the Vanguard ETF returned 6% in 2022 including dividends, outperforming the 4.7% total return from the FTSE 100. On a five-year basis it has generated 6.2% annualised returns, according to Morningstar.

The Vanguard FTSE All-World High Dividend Yield ETF looks to replicate the FTSE All-World High Dividend Yield Index, taking stakes in large and mid-sized companies all over the globe that pay generally higher than average dividends.

It favours sectors like financials, consumer staples and healthcare, with about 44% of stocks US-listed and 7% in UK. This list includes many of the world’s best-known names, such as Johnson & Johnson (JNJ:NYSE), Exxon Mobil (XOM:NYSE), JPMorgan Chase (JPM) and Nestle (NESN:SWX).

Morningstar says high-yield stocks tend to be associated with more mature, profitable businesses that can grow as well as provide a stream of income.

However, some stocks offer a high yield because their share price has fallen, and analysts have yet to change dividend forecasts. A falling share price is the market’s way of saying it is worried about something, and sometimes – not always – subsequent bad news from a company can result in a cut in the dividend. This is particularly true if cash is needed elsewhere in the business or there has been a shortfall in earnings.

Investors must understand this risk and that dividends in general are not guaranteed to be paid by companies. If you’re happy with these risks, we do find the Vanguard ETF to be an attractive diversified source of income.

For those who do not currently need to collect the distributions as cash, there is an alternative version of the ETF that automatically reinvests the quarterly dividends, listed under the VHYG ticker.

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