Investors in the Vanguard Australian Shares Index ETF (ASX: VAS) are probably feeling a little let down in 2023 so far.
Over the past few years, holders of this popular ASX exchange-traded fund (ETF) have enjoyed the largest dividends the Vanguard Australian Share ETF has ever paid.
As we looked at late last month, VAS units doled out a total of $3.53 in dividend distributions per unit in 2019. In 2020, that fell to $1.88 per unit. But in 2021, investors were treated to $3.43 in dividend distributions per share. Then, VAS made it rain in 2022, with a whopping $6.36 per unit distributed.
Just for some context, that kind of raw dividend power would result in a dividend yield of more than 7% at the current VAS unit price.
Why have the VAS dividends dried up on the ASX?
However, this torrent of dividend income has dried up dramatically in 2023 so far. The Vanguard Australian Share ETF pays out quarterly dividend distributions. Below is a list of the four most recent distributions and how they compared to the equivalent payment in the preceding year:
| Distribution date | VAS distribution per unit | Distribution in previous corresponding quarter | Change from previous payment (%) |
| 30 Jun 2023 | $0.89 | $2.16 | (58.8%) |
| 31 Mar 2023 | $0.58 | $2.00 | (71%) |
| 31 Dec 2022 | $0.75 | $0.70 | 7.14% |
| 30 Sep 2022 | $1.45 | $1.41 | 2.84% |
As you can see, VAS investors enjoyed a total of $6.27 in dividend distributions per unit over the 12 months to 30 June 2022. But only $3.67 in dividend distributions for the 12 months to 30 June 2023. That's a reduction of roughly 41.5%. Today, the VAS ETF currently offers a dividend yield of 4.04%, which is a long way from that 7%-plus level we discussed earlier.
So many Vanguard Australian Shares ETF investors are probably asking why the VAS dividend has collapsed in 203 so far.
Well, as an ETF, the Vanguard Australian Shares fund can only pay out in distributions what it first receives in dividends from its underlying share portfolio. In this case, the Vanguard Australian Shares ETF's underlying holdings are made up of the 300 largest ASX shares on the stock market, weighted by market capitalisation.
As most ASX investors would know, the top echelons of the Australian stock market are dominated by the big banks and miners. While ASX investors have enjoyed some boosted bank dividends in 2023, it's a different story when it comes to the mining shares like BHP Group Ltd (ASX: BHP), Rio Tinto Limited (ASX: RIO), and Fortescue Metals Group Limited (ASX: FMG).
ASX mining shares: From dividend feast to famine
During 2021 and 2022, we saw some of the largest dividends that have ever come out of the big ASX miners, thanks to the commodity price boom that we saw then. BHP went from paying an annual total of $1.75 per share in 2020 to $4.03 per share in 2021 and $4.63 in 2022. This has had a huge impact on the VAS ETF, as BHP alone accounts for more than 11% of the fund's underlying portfolio.
Likewise, Rio went from forking out $5.66 per share in 2020 to $12.77 per share in 2021. And Fortescue Metals paid out $1.76 per share in dividends in 2020, but $3.58 per share in 2021.
Thus, those monstrous dividends from the ASX's big miners flowed on through to VAS's investors over 2021 and 2022. That's why we saw such a huge rise in the dividends that this ETF was able to pay out. But alas, across 2022 and into 2023, those dividends have started to dry up.
Fortescue's latest final dividend for this year came in at $1 per share, a big drop from the $2.11 we saw in 2021. Likewise, Rio's final dividend this year will be worth $2.61, down from $3.84 for the same period last year. And BHP looks set to fork out around $1.25 per share for its final dividend this year, which is again a significant fall from the $2.55 per share investors enjoyed last year.
So if you want someone to blame for the dramatic fall in ASX income from the VAS ETF this year so far, it's these big miners that are mostly responsible.
