Does Vanguard Australian Shares Index ETF (VAS) pay fully franked dividends?

Are VAS ETF investors getting the full benefits of franking credits?

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The Vanguard Australian Shares Index ETF (ASX: VAS) is a popular way to indirectly invest in S&P/ASX 300 Index (ASX: XKO) shares. Plenty of Aussies may like to receive dividends with franking credits from ASX 300 shares.

Exchange-traded funds (ETFs) allow investors to buy a portfolio of businesses in just one investment. ETFs act as a conduit to pass on the dividends they receive to unitholders of the ETF.

There are plenty of businesses within the ASX 300 that pay fully franked dividends including Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP) and Telstra Group Ltd (ASX: TLS). Does that mean the VAS ETF pays fully franked dividends too?

Franking level of VAS ETF dividend payouts

The Vanguard Australian Shares Index ETF dividend yield is dictated by the yield of the underlying holdings, leading to an overall yield from all of the businesses. For example, the high dividend yield of National Australia Bank Ltd (ASX: NAB) pushes up the VAS yield and the low yield of CSL Ltd (ASX: CSL) shares hurts the ETF's yield.

According to Vanguard, the VAS ETF had a dividend yield of 3.7% at the end of April when taking into account all of the dividend yields within the ASX 300.

The franking level of the Vanguard Australian Shares Index ETF distributions is influenced by the franking level of its holdings' dividends.

Some ASX shares within the VAS ETF portfolio don't pay fully franked dividends, so the ETF is unable to pay fully franked distributions. Examples of unfranked income payers include CSL, Goodman Group (ASX: GMG), James Hardie Industries plc (ASX: JHX) and Resmed CDI (ASX: RMD).

Every three months, the fund pays out the dividends it has received, so the franking credit level varies depending on the ASX shares.

Latest distribution

Let's briefly look at the latest distribution from the VAS ETF, with Vanguard providing a tax estimate.

For the period ending 31 March 2024, the quarterly payment was 84.79 cents per unit. Of this, 66.3 cents were franked dividends and 9 cents were unfranked dividends. The rest of the distribution comprised other forms of income.   

Vanguard reported 29.33 cents of franking credits per unit were attached to the distribution, which are an additional return to investors and can be accessed when investors do their FY24 tax return.

The next distribution will depend on what dividends the VAS ETF receives from its investments.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended CSL, Goodman Group, and ResMed. The Motley Fool Australia has positions in and has recommended ResMed and Telstra Group. The Motley Fool Australia has recommended CSL and Goodman Group. 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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