The Vanguard Diversified High Growth Index ETF (ASX: VDHG) is one of the most diversified exchange-traded funds (ETF) on the ASX. In this article, I’m going to look at whether it’s a potential option for passive income and what the dividend yield is.
For investors that haven’t heard of this ETF, it’s a fund of funds. Meaning, the VDHG’s investments are other funds that, within those funds, own shares and bonds.
What funds is the Vanguard Diversified High Growth Index ETF invested in?
It’s invested in seven different funds. I’ll also mention how much of the VDHG ETF is invested in each fund at the end of June 2023.
Vanguard Australian Shares Index Fund (wholesale) – 35.5%
Vanguard International Shares Index Fund (wholesale) – 26.6%
Vanguard Shares Index Fund (hedged), Australian dollar class – 16.5%
Vanguard International Small Companies Index Fund (wholesale) – 6.5%
Vanguard Emerging Markets Shares Index Fund (wholesale) – 4.9%
Vanguard Global Aggregate Bond Index Fund (hedged) – 7%
Vanguard Australian Fixed Interest Index Fund (wholesale) – 3%
In total, 90% of it is invested in shares, while 10% is invested in bonds. The shares are described as growth assets, while the bonds were called income assets.
What is the dividend yield of the VDHG ETF?
The performance of an ETF is entirely decided by the underlying investments, so Vanguard Diversified High Growth Index ETF’s performance reflects the performance of the funds, and those funds’ performance is decided by the underlying shares’ performance.
It’s a similar thing for the dividends – the ETF just acts as a conduit to take the dividend from the shares to the ETF investors.
ETFs also pay any crystalised capital gains to investors, so the ETF distribution can be a combination of dividends (plus interest from bonds) and capital gains paid out.
The total return of the ASX ETF since it started in November 2017 has been an average per annum of 7.5%, with 5.17% of that being distributed to investors. I’m not sure how likely a dividend yield of more than 5% is going forward. In the last 12 months, the distribution yield amounted to 3.3%.
Is it a good option for passive income?
The VDHG may not be the best investment on the ASX for dividends, but it has a good enough yield to be attractive, particularly because it comes with strong diversification as well as bonds, ASX shares and international shares.
