Are Vanguard Australian Shares ETF (VAS) dividends fully franked?

Are Aussies getting juicy franking credits from one of the most popular Australian ETFs?

| More on:
Young woman thinking with laptop open.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Key points

  • The Vanguard Australian Shares ETF owns a number of high-yielding ASX shares that pay fully franked dividends
  • But, it also owns businesses that don’t pay fully franked dividends like Macquarie and Transurban
  • While the majority of the dividend is normally franked, the ETF doesn’t pay fully franked dividends

The Vanguard Australian Shares Index ETF (ASX: VAS) is one of the most popular exchange-traded funds (ETFs) in Australia. It's also paying out sizeable dividends every quarter to investors. Are those dividends fully franked?

For investors that don't know what this investment is, it's an ETF that's provided by Vanguard, one of the world's biggest providers of cheap investment funds.

ETFs allow investors to buy a whole bunch of businesses in just one investment. This particular fund tracks the S&P/ASX 300 Index (ASX: XKO), being 300 of the biggest businesses in Australia.

What are franking credits?

Australia has a generous tax system that enables Australian tax residents to benefit from a refundable tax offset to reduce their taxes owed when they receive dividends.

Companies pay tax and then when a dividend is paid, the franking credits are attached. This either reduces the amount of income tax owed on the dividend or excess franking credits are refunded after taxpayers complete their tax return.

As investors get those dividends, they learn whether the dividend is fully franked or not.

Only Aussie companies that operate within the Australian tax system generate franking credits. Non-Australian businesses may pay unfranked dividends. Businesses operating in a trust structure don't produce franking credits, though they can pass them on if they receive a dividend.

If a company made some of its profit in Australia and some overseas, its Australian profit may not generate enough franking credits to make the dividend fully franked – it may only be partially franked. For example, 80% of the dividend may have franking credits, or 60% of it, or whatever the percentage ends up being.

How this applies to the Vanguard Australian Shares ETF

As an ETF, this investment passes through the income it receives.

Some of the investment income it receives is fully franked, like the dividends from Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and Woodside Energy Group Ltd (ASX: WDS).

But, there are also plenty of examples that don't pay fully franked dividends, like Macquarie Group Ltd (ASX: MQG), CSL Limited (ASX: CSL) and Transurban Group (ASX: TCL).

The level of franking changes every quarter – based on what dividends it has received that quarter – but it doesn't pay fully franked dividends/distributions because not every single dividend and distribution that it receives is fully franked. But, historically, the level of franking is usually at least 50% or higher.

What's the current dividend yield?

The combined dividend yield of the shares that the Vanguard Australian Shares ETF owns at the end of September 2022 was 4.8%, excluding the franking credits.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL Ltd. The Motley Fool Australia has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Dividend Investing

Man holding out Australian dollar notes, symbolising dividends.
Dividend Investing

Own IVV ETF or other iShares ASX ETFs? Next dividends and DRP prices revealed…

BlackRock has announced the next lot of dividends for its iShares ETFs, as well as the DRP prices.

Read more »

A woman sits in a cafe wearing a polka dotted shirt and holding a latte in one hand while reading something on a laptop that is sitting on the table in front of her
Dividend Investing

How are these passive income investors earning a 7.5% dividend yield on their surging CBA shares?

CBA shares are proving more lucrative for some passive income investors than others.

Read more »

A couple cheers as they sit on their lounge looking at their laptop and reading about the rising Redbubble share price
Dividend Investing

3 excellent ASX dividend shares to buy with $2,500

Brokers think these shares could be in the buy zone for income investors.

Read more »

A woman sits in a quiet home nook with her laptop computer and a notepad and pen on the table next to her as she smiles at information on the screen.
Opinions

2 top ASX passive income stocks to buy with $5,000 today

I think these leading ASX passive income shares will keep delivering market beating yields in FY 2026.

Read more »

A person is weighed down by a huge stack of coins, they have received a big dividend payout.
ETFs

Own the VanEck Wide Moat ETF (MOAT)? Get ready for a monster dividend

Investors are in line for a single dividend worth nearly 6%.

Read more »

A businessman looking at his digital tablet or strategy planning in hotel conference lobby. He is happy at achieving financial goals.
Dividend Investing

2 dirt cheap ASX dividend stocks to buy in July

Here are a couple of cheap stocks that analysts think would be top picks for income investors.

Read more »

A woman standing in a blue shirt smiles as she uses her mobile phone.
Dividend Investing

Here's the Telstra dividend forecast from a top analyst through to 2029

Can shareholders call on this stock for strong dividend income?

Read more »

A man holding a cup of coffee puts his thumb up and smiles while at laptop.
Dividend Investing

Why these ASX dividend shares with 4% to 8% yields could be strong buys

Let's see why analysts rate these shares as buys.

Read more »