The Vanguard Australian Shares Index ETF (ASX: VAS) offers one of the easiest ways for investors to gain exposure to the ASX share market and the dividend income that comes with it.
This exchange-traded fund (ETF) tracks the S&P/ASX 300 Index (ASX: XKO), which comprises the 300 biggest businesses on the ASX. Owning this fund offers decent diversification given it owns 300 companies.
Some of the biggest positions in the portfolio include household names like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), and ANZ Group Holdings Ltd (ASX: ANZ).
Many investors would already think of these companies as among the ASX's leading dividend shares.
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Why are ASX shares attractive for passive income?
The ASX blue-chip shares, like those mentioned above, as well names like Wesfarmers Ltd (ASX: WES), Telstra Group Ltd (ASX: TLS), and Rio Tinto Ltd (ASX: RIO), usually come with an attractive dividend yield.
They have relatively high dividend payout ratios, meaning they pay out a fairly large amount of their yearly profit to shareholders. Of course, that does mean those companies are retaining less money for future reinvestment to fund growth.
Another upside for Aussies investing in ASX shares (and the VAS ETF) is the benefit of franking credits. Franking credits are refundable tax credits that result from Australian companies paying income tax on their profits. For Australians, franking credits boost the after-tax dividend yield.
I'll also note that the major ASX indexes tend to be dominated by ASX bank shares and ASX mining shares, which typically have lower price/earnings (P/E) ratios than a sector like technology (which is the biggest sector in the US share market). Lower P/E ratios normally mean higher dividend yields.
Is the Vanguard Australian Shares Index ETF a good option for dividend income?
For investors seeking dividend income from an ASX ETF, I'd say the VAS ETF is a solid option. It offers a diversified investment across numerous holdings with relatively high dividend yields.
According to Vanguard, VAS had a dividend yield of 3.5% as of 31 August 2024, with attached franking credits being a bonus on top of that stated yield.
But, it's not the only ASX ETF out there with a sizeable dividend yield.
If I were looking at ETFs specifically for dividend income, I'd also consider the higher-yield-focused Vanguard Australian Shares High Yield ETF (ASX: VHY), UK ETF Betashares FTSE 100 ETF (ASX: F100), and dividend-focused SPDR S&P Global Dividend Fund (ASX: WDIV).
