Does the Vanguard Australian Shares Index ETF (VAS) pay a decent dividend?

Should income investors be looking at this ETF as an option?

| More on:
A couple sit in their home looking at a phone screen as if discussing a financial matter.

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

The Vanguard Australian Shares Index ETF (ASX: VAS) is an exchange-traded fund (ETF) with a history of paying dividends to investors. 

An ETF invests in a group of businesses. Through the ETF, investors can access the capital growth of those companies. The ETF also acts as a conduit for the dividend income that it receives from its holdings.

When companies in the portfolio have a relatively high dividend yield, that leads to the ETF itself having a higher yield too.

And with the Australian share market known for generous dividends, let's have a look at the VAS ETF's dividend yield.

Vanguard Australian Shares Index ETF dividend yield

Every month, Vanguard gives investors an update on the fund's performance, dividend yield, holding allocations and so on.

In its update released last month, Vanguard disclosed that the VAS ETF's dividend yield at the end of August was 3.5%, excluding franking credits.

The fund tracks the S&P/ASX 300 Index (ASX: XKO), an index of 300 of the largest businesses on the ASX.

As mentioned, the fund's yield is boosted by ASX companies with relatively higher dividend yields. These include BHP Group Ltd (ASX: BHP), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ) and Woodside Energy Group Ltd (ASX: WDS).

Others with lower yields, such as CSL Ltd (ASX: CSL), Xero Ltd (ASX: XRO), and WiseTech Global Ltd (ASX: WTC), push down the overall average.

The average yield of all these companies, weighted to their size in the portfolio, decides the overall dividend yield of the Vanguard Australian Shares Index ETF.

Why has the VAS ETF distribution been stronger than the dividend yield?

Investors in Vanguard Australian Shares Index ETF units can receive bigger distributions than what the dividend yield suggests.

ETFs must also distribute any capital gains that are made on sold shares within the fund where a profit is made. Therefore, an ETF's passive income can be made up of dividends, capital gains and other small miscellaneous income items.

According to Vanguard, the distribution return over the past year amounts to 4.26% in percentage terms. Over the past 10 years, the distribution return has been an average of approximately 4.5% per annum.

Foolish takeaway

With its high-yielding holdings, the VAS ETF does indeed pay a decent dividend. Due to the number of different holdings it owns, it also offers a certain level of diversification.

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, WiseTech Global, and Xero. The Motley Fool Australia has positions in and has recommended WiseTech Global and Xero. The Motley Fool Australia has recommended CSL. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on ETFs

A girl lies on her bed in her room while using laptop and listening to headphones.
ETFs

Narrowing it down: 2 ASX ETFs with a niche focus

These two funds offer great exposure to two emerging sectors. 

Read more »

Australian dollar notes in the pocket of a man's jeans, symbolising dividends.
ETFs

2 top ASX ETFs to buy for passive income

Let's see what sort of yields these funds offer income investors.

Read more »

Woman with hands under a holographic globe with green related icons in the background.
ETFs

3 reasons why this Vanguard ETF is a top buy for diversification

I think this fund offers a lot of the diversification investors may need.

Read more »

A businessman hugs his computer and smiles.
ETFs

Why these ASX ETFs could be top buy and hold forever picks

Let's see why these funds could be great options for investors to buy and hold.

Read more »

ETF written in yellow with a yellow underline and the full word spelt out in white underneath.
ETFs

3 ASX ETFs for a $500 investment

These funds offer investors access to companies both locally and across the globe.

Read more »

Gold bars and Australian dollar notes.
ETFs

$10,000 invested in GDX ETF a year ago is now worth…

Has this ASX gold ETF delivered for investors amid the recent gold price bonanza?

Read more »

A woman in a hammock on her laptop and drinking a smoothie
ETFs

$10,000 invested in FANG ETF a year ago is now worth…

Since inception, the Fang+ ETF's total returns have averaged 30.82% per annum. No wonder it's popular.

Read more »

Businessman smiles with arms outstretched after receiving good news.
ETFs

3 reasons why this fund could claim to be the best ASX ETF

I think this fund has great elements that make it one of the best ETFs on the ASX.

Read more »