The Vanguard Australian Shares Index ETF (ASX: VAS) is the most popular exchange-traded fund (ETF) on the ASX, by far. And there are many reasons ASX investors are drawn to this index fund.
For one, it provides a lot of easy diversification to ASX investors by housing the largest 300 ASX shares in its portfolio. It is also an ideal 'bottom-drawer' passive investment, requiring very little ongoing maintenance.
But the VAS ETF is also appealing from a dividend income perspective. As most ASX investors would be well aware, ASX shares are famous for their franked dividends. Most of the largest companies on the ASX are hefty dividend payers.
From Commonwealth Bank of Australia (ASX: CBA) to BHP Group Ltd (ASX: BHP), from Telstra Group Ltd (ASX: TLS) to Woodside Energy Group Ltd (ASX: WDS), the upper echelons of the ASX are full of dividend shares that routinely offer investors a yield of 4% or greater. Not to mention with full franking credits.
On the surface, VAS also looks like a solid pick for dividend income. For one, it pays quarterly dividend distributions, rather than the six-month interval that is common on the ASX. But this ETF also has some solid income chops to boast of.
As it stands today, ASX VAS investors have enjoyed a total of $4.94 in dividend distributions per unit over the past 12 months. That gives VAS a trailing distribution yield of 5.51%.
But do these dividend distributions come fully franked, like the dividends from CBA, BHP, Telstra or Woodside typically do?
Does the VAS ETF pay out fully-franked ASX dividends?
Well, sadly, the answer is no. A majority of the shares in the ASX 300 index pay out dividends. But many of these dividends do not come with franking credits attached, or at least come partially franked. Remember, if a company doesn't pay Australian tax on some or all of its profits, it can't use those profits to fund fully-franked dividends.
Some ASX shares that typically don't offer fully-franked dividends include Macquarie Group Ltd (ASX: MQG), Transurban Group (ASX: TCL) and CSL Ltd (ASX: CSL).
Because these kinds of shares that pass through their dividends are present in Vanguard Australian Shares ETF's portfolio, it, in turn, can't provide its investors with full franking credits.
But they usually still come partially franked. For example, the fund's total dividend distributions for the 2022 financial year were partially franked at 64%. The previous financial year saw a franking level of 77.1%.
So all in all, the Vanguard Australian Shares Index ETF has a lot to offer ASX investors. But fully-franked dividends are not on that list.
Investors will still enjoy some franking from their VAS units. But unless every dividend-paying share in the ASX 300 index starts paying out fully-franked dividends, that's what VAS investors will have to accept.
