How much do you need to invest in the Vanguard Australian Shares Index ETF (VAS) for $10,000 in annual dividends?

Can the VAS ETF deliver a high distribution payout?

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The Vanguard Australian Shares Index ETF (ASX: VAS) is a popular way to invest passively in ASX shares. But can we consider this exchange-traded fund (ETF) a good option for dividends?

The job of an index fund like VAS is to match the returns of its underlying index. In this case, it's the S&P/ASX 300 Index (ASX: XKO) – 300 of the biggest businesses on the ASX.

In terms of dividends, the VAS ETF passes on to its unitholders the dividend income (or distributions) it receives from its holdings.

How large is the VAS ETF dividend yield?

The biggest holdings in the Vanguard Australian Shares Index ETF portfolio also have some of the ASX's biggest dividend yields.

We're talking about ASX blue-chip shares like Rio Tinto Ltd (ASX: RIO), Fortescue Ltd (ASX: FMG), Westpac Banking Corp (ASX: WBC), ANZ Group Holdings Ltd (ASX: ANZ) and Telstra Group Ltd (ASX: TLS).

This means the VAS ETF as a whole has a generous dividend yield as well.

According to Vanguard, the VAS ETF had a partially franked dividend yield of 3.9% at the end of February 2024. Franking credits are a bonus that adds more to the after-tax returns – they either offset some of the tax owed, or the franking credits can be refundable.

However, everyone's tax position is different, so I'll just use the regular dividend yield when calculating.

How much to invest for $10,000 of annual dividends?

We're talking about a sizeable investment in the ETF to receive $10,000 of annual dividends, as it's a large amount of cash flow. Based on a 3.9% dividend yield, we'd need to invest around $256,000 in VAS ETF units to receive $10,000 of yearly dividends.

Looking at more realistic numbers, a $25,641 investment would generate $1,000 per year of cash dividends. And if we had $10,000 to invest in Vanguard Australian Shares Index ETF units, this would create $390 of annual cash dividends.

Another option

Focusing on building a portfolio of individual ASX dividend shares might be a more efficient strategy for investors who want a higher yield.

For example, Commsec estimates suggest that in FY24, Telstra could pay a cash dividend yield of 4.7%, diversified property owner Charter Hall Long WALE REIT (ASX: CLW) could pay a distribution yield of 7% and IGA supplier and hardware business Metcash Ltd (ASX: MTS) could pay a cash dividend yield of 5.1%.

There are plenty of other ASX shares with appealing dividend yields to look at as well.

Motley Fool contributor Tristan Harrison has positions in Fortescue and Metcash. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended Telstra Group. The Motley Fool Australia has recommended Metcash. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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