As we've discussed rather frequently in recent weeks, it can be hard to find ASX dividend shares with large yields to buy in the current environment. As such, income investors who are searching for their next dividend-paying investment might want to look to an ASX exchange-traded fund (ETF).
Popular dividend shares like Commonwealth Bank of Australia (ASX: CBA), Wesfarmers Ltd (ASX: WES) and Coles Group Ltd (ASX: COL) have all enjoyed significant share price appreciation in recent months.
Whilst this has been wonderful for existing investors, it has also had the adverse effect of lowering the dividend yields on these shares to historic lows. To illustrate, buying CBA stock today will secure a dividend yield of around 2.5%. That would have been unheard of for an ASX bank share until recently.
That's why ASX income investors might want to consider a dividend-focused ETF for their next income investment.
One prominent ETF in this space is the Vanguard Australian Shares High Yield ETF (ASX: VHY).
An ASX ETF with a 7% dividend yield?
This fund from popular provider Vanguard specialises in providing exposure to the ASX's best income stocks.
It typically holds around 70 different ASX dividend shares, balancing between different sectors. Some of its current largest holdings are CBA, BHP Group Ltd (ASX: BHP), National Australia Bank Ltd (ASX: NAB), Transurban Group (ASX: TCL) and Woodside Energy Group Ltd (ASX: WDS).
This ASX ETF works by passing on all of the dividends it receives, along with any franking credits, from its underlying portfolio to its investors. It does this every three months, another bonus for investors who like a quarterly paycheque in the mail.
Over the past 12 months, VHY has paid out a total of $5.65 in dividend distributions per unit. At the last traded price, this gives this ASX ETF a trailing yield of just over 7.4%. As we just touched on, these dividend distributions usually come with a healthy level of franking, too, further boosting potential returns.
Now, these dividend distributions do tend to vary from year to year. As such, one shouldn't buy the Vanguard Australian Shares High Yield ETF with the expectation of getting a 7% yield on your cash every year from here on out. However, I still think this ASX ETF is well worth a look for income-orientated investors who are finding it difficult to uncover a good deal on an individual dividend stock today.
