The Vanguard Australian Shares Index ETF (ASX: VAS) has a reputation for providing a rewarding level of passive income.
The distribution income of an exchange-traded fund (ETF) is entirely dictated by what happens with the underlying holdings. If an ASX shareholding pays a dividend to the VAS ETF, the fund will hold that money until the next quarterly payment and pass that income through to the ETF's investors.
The VAS ETF is invested in 300 of the largest businesses listed in Australia. So, every time one of those holdings pays a dividend, investors will benefit. The distribution can be boosted if there are any capital gains to distribute, if any holdings are sold for a profit.
Now that we have a basic understanding of where the passive income is coming from, let's take a look at how large the dividend income is for investors.
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What is the Vanguard Australian Shares Index ETF dividend yield?
Every month, Vanguard tells investors about what the VAS ETF dividend yield is. Every business in the portfolio influences the dividend yield.
Commonwealth Bank of Australia (ASX: CBA) shares have the biggest influence because the bank was 11.6% of the overall ETF as of 30 June 2025. BHP Group Ltd (ASX: BHP) shares made up 7% of the portfolio, National Australia Bank Ltd (ASX: NAB) shares accounted for 4.5%, Westpac Banking Corp (ASX: WBC) was 4.4%, CSL Ltd (ASX: CSL) was 4.35%, Wesfarmers Ltd (ASX: WES) was 3.6% and so on. The dividend yield is weight-adjusted based on the yield of each business and its size in the VAS ETF's portfolio.
Many of the largest businesses in the VAS ETF portfolio have generous dividend payout ratios and solid dividend yields, which contribute to the Vanguard Australian Shares Index ETF also having a pleasing dividend yield.
At the end of June 2025, the ASX ETF had a dividend yield of 3.3%, which doesn't include the bonus of franking credits.
How important is the passive income for overall returns?
It's enjoyable to receive dividends because they're "real" returns being paid into our bank accounts.
But, are they providing a majority of the returns for the ASX share market?
According to the Vanguard monthly update for June 2025, over the prior ten years, the VAS ETF returned an average of 8.8%, with the distribution accounting for an average of approximately 4.5% of that total return, meaning it was a slight majority of the total return.
Time will tell how important the passive income is for the next ten years, but the dividend yield is at a decent starting point.
