I recommend not only looking at the yield today, but payout ratio, price history and dividend growth. While a high dividend looks promising in a snapshot of the company or fund, it might be high because the price of the company/fund has been performing poorly due to the underlying companies doing poorly, as is the case with VGSLX in addition to them needing to pay out most of their income.
It all boils down to what your time horizon is... is this long term or short term?
Take the two examples below, NLY vs. MMM. if you bought each respective stock 1 year ago, with an initial investment of $10,000 and received the dividend as cash without reinvesting, which seems to be your goal:
NLY: Todays Snapshot, Jan 3rd 2014: Price $10.00 with a dividend yield of 12.00% or .30 cents/share! looks pretty good!!
Anally Capital- a Reit composed of a portfolio of an assortment of real estate investments
Price on JAN 4th 2013 = $14.49
Purchased 690.13 shares with your $10,000 bucks.
Dividend #1: April 29th 2013, $.45/share = $310.56
Dividend #2: July 29th 2013, $.40/share= $276.05
Dividend #3: October 31st 2013, $.35/share= $241.55
Dividend #4: January 31st 2014, Will be $.30/share= $207.04
Price on Jan 3rd 2014 of $10.00 = $6,901.30
Plus Cash at end of January of: $1,035.20
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Total value of investment plus Cash= $7,936.50
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MMM: Today Snapshot, JAN 3rd 2014: Price $138.45 with a dividend yield of 2.47% or .855 cents/share. doesn't look as good as Anally:
3M- a diversified Technology company:
Price on JAN 4th 2013 = $94.79
Purchased 105.496 shares with your $10,000 bucks.
Dividend #1: March 12th 2013, $0.635/share = $66.99
Dividend #2: June 12th 2013, $0.635/share = $66.99
Dividend #3: Sept 12th 2013, $0.635/share = $66.99
Dividned #4:Dec 12th 2013, $0.635/share = $66.99
Price on JAN 3rd 2014 of $138.45 = $14,605.92
Plus Cash at end of January of: $267.96
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Total value of investment plus cash = $14,873.88.... almost double!!!
ALSO:
In the long term, The NLY dividend cash payments will will be outpaced by the dividend growth of MMM anyway.
in 2010 NLY yearly dividend was $2.65 yielding $1828.84 that is a negative 17.28% dividend growth per year over the last 3 years!! VS. MMM which has had a POSITIVE dividend growth of 6.55% per year of the last three years, AND MMM has already announced the 2014 dividends will by $.855/quarter... that is over 34% increase from this year.. IF current trends continue for the rest of the decade the yearly dividend payouts for your original stock purchases would look like this:
YEAR: NLY@ -17.28% growth MMM@ 6.55% growth
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2014 $856.32--------------------$360.80(we already know the payout for MMM will be this...)
2015 $708.35 $384.43
2016 $585.94--------------------$409.61
2017 $484.69 $436.44
2018 $400.94--------------------$465.02
2019 $331.65 $495.48
2020 $274.34--------------------$527.98
Of course, who knows what the future markets hold, but usually companies/funds with a yield of more than 3-4% and a payout ratio more than 30-40% are not sustainable and the dividend growth is often negative, or at the very least doesn't keep up with inflation. If you plan on holding the position for more than a couple of quarters (like a decade or more?) then pay close attention to the sustainability and growth of the dividend, stock price aside.
Cheers,
Scott