The Vanguard Australian Shares Index ETF (ASX: VAS) is typically one of the ASX exchange-traded funds (ETFs) with a leading dividend yield.
An investor with $10,000 invested in the VAS ETF, for example, will likely receive hundreds of dollars in passive income in 2025. Let's explore how.
It's important to understand that the dividend yield of an ASX ETF is largely decided by the underlying holdings. ETFs simply pass on the dividend income they receive from their investments.
So, if an ETF has high-yielding holdings, this helps the fund's overall yield. And funds that are focused on lower-yielders, such as US-focused funds like the iShares S&P 500 ETF (ASX: IVV), have low dividend yields.
Which ASX shares does the VAS ETF own?
There are plenty of quality companies within the S&P/ASX 300 Index (ASX: XKO) – the index that VAS ETF tracks – that offer a high dividend payout ratio and a pleasing dividend yield.
I'm thinking of names like Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), Telstra Group Ltd (ASX: TLS), Woodside Energy Group Ltd (ASX: WDS), BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), Fortescue Ltd (ASX: FMG) and Transurban Group (ASX: TCL).
These businesses are key contributors to the VAS ETF having a sizeable dividend yield.
How big is the dividend yield?
The Vanguard Australian Shares Index ETF provides investors with a monthly update that reveals the fund's various financial characteristics. As of December 2024, the VAS ETF had a dividend yield of 3.5%.
If the underlying holdings grow or cut their payments, this will affect the amount of income the fund can distribute to investors.
When the ETF's unit price changes, that also affects the dividend yield on offer in the short term. When the unit price goes up, the yield is lower for new investors. If the unit price goes down, new investors can get a better dividend yield.
How much passive income would a $10,000 investment pay?
A $10,000 investment in the VAS ETF today, with a yield of 3.5%, would deliver $350 of dividends as cash.
Aussie investors would also benefit from the franking credits attached to the dividend payments, which boosts their after-tax position.
