The Vanguard MSCI Index International Shares ETF (ASX: VGS) is a very effective and popular way to invest in the global share market. While it's best known for its capital growth potential, it's also worth considering its suitability for passive income by looking at its dividend yield.
As we can see on the chart above, it has been a very good time to own VGS ETF units in the last few years.
The fund gives investors the ability to invest in many of the world's largest businesses through a single exchange-traded fund (ETF) investment.
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How exchange-traded fund passive income works
ETFs operate in a trust (as opposed to a company) structure, so they need to pass through to investors all the income they receive.
Each time the fund receives a dividend from Apple, Microsoft or Nvidia, the VGS ETF sends that money to investors in the fund.
Considering the Vanguard MSCI Index International Shares ETF is invested in more than 1,200 global businesses, a substantial number of those would be paying dividends to the VGS ETF, which is then passed onto investors every three months.
Additionally, another major aspect of distributions is that an ETF will also pay any realised (or crystallised) gains to investors when it sells shares. This part of the distribution can vary significantly year to year and shouldn't be relied on to be consistent.
What is the VGS ETF dividend yield?
Every month, fund provider Vanguard tells investors about various financial elements and portfolio details.
The latest update was for the month of May 2025. For that month, Vanguard reported a dividend yield of 1.7% for the VGS ETF.
That looks quite low – it is. But, it's reflective of the dividend yield of the various constituent businesses including Nvidia, Microsoft, Apple, Amazon, Alphabet, Meta Platforms, Broadcom and Tesla. These are the biggest positions in the portfolio and have a low (or even no) dividend yield. This is partly because of their high price/earnings (P/E) ratio and partly because they're retaining a sizeable amount of earnings for reinvestment and future growth.
So, while it isn't an obvious choice for major passive income, it does provide dividend payments and the biggest businesses continue to grow.
