If you’re an ASX dividend investor chasing a simple source of passive income on the share market, chances are you might have come across the Vanguard Australian Shares High Yield ETF (ASX: VHY).
This dividend-focused exchange-traded fund (ETF) is one of the most popular on the ASX, with close to $3 billion in assets under management.
Investors might be attracted to this ETF for its ability to provide a one-stop shop for ASX dividend income. But no one should dive into an investment without first understanding exactly how it works and what they are actually investing in. So let’s discuss all of that and more, with a deep dive into the Vanguard High Yield ETF.
An investment into VHY units is an investment into a concentrated portfolio of ASX divided shares, currently 72. These shares are selected for their ability to offer “higher forecast dividends relative to other ASX-listed companies”.
The fund is structured in such a way as to prevent too much concentration in one particular sector. So any one industry is limited to 40% of the overall portfolio. No individual company is allowed to account for more than 10% of the portfolio.
How does the VHY ETF provide income for ASX dividend investors?
Among those 72 shares, you will find virtually all of the ASX’s biggest dividend names. Its top holdings include BHP Group Ltd (ASX: BHP), Woodside Energy Group Ltd (ASX: WDS), and Wesfarmers Ltd (ASX: WES). There’s also Telstra Group Ltd (ASX: TLS), Transurban Group (ASX: TCL), and the big four ASX bank shares.
As you might expect from an ASX dividend-focused fund though, financials shares, mining or materials stocks, and energy shares make up most of the weighted portfolio.
Let’s get to the dividends though. Unlike most ASX dividend shares, this ETF forks out a dividend distribution every three months, rather than the typical six. Over the past 12 months (including the upcoming 18 July distribution), this pattern has continued. Investors have received a total of $3.41 in distributions per unit.
At the current VHY unit price of $66.30, this gives the Vanguard Australian Shares High Yield ETF a trailing dividend distribution yield of 5.14%. That comes almost fully franked too.
Turning to total shareholder returns, this ETF has given investors a 15.01% return over the 12 months to 30 June. Over the past three years, the Vanguard Australian Shares High Yield ETF has given an average return of 14.78% per annum, and 8.62% per annum over the past five (assuming dividends are reinvested).
This ETF charges a management fee of 0.25% per annum, or $25 a year for every $10,000 invested.
