The Vanguard Australian Shares Index ETF (ASX: VAS) is one of the most popular exchange-traded funds (ETFs) on the ASX. However, popularity doesn't automatically make it a good investment for passive income.
An ETF usually provides income for investors by passing the dividend income it receives from its portfolio of shares onto the holders of the ETF.
As you may already be aware, the Vanguard Australian Shares Index ETF allows investors to track the return of the S&P/ASX 300 Index (ASX: XKO), an index of 300 of the largest businesses on the ASX. That means it's invested in companies like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), National Australia Bank Ltd (ASX: NAB), and Westpac Banking Corp (ASX: WBC).
Is the VAS ETF appealing for passive income?
Owning 300 businesses across a range of industries certainly means this fund ticks the diversification box to a satisfactory level.
One of the main limitations to the VAS ETF achieving significant capital growth, in my view, is that it has a high allocation to ASX mining shares, and ASX bank shares. Those sectors aren't known for strong earnings growth. But, those two sectors do have relatively high dividend yields.
The dividend payout ratios of ASX miners and ASX banks tend to be fairly generous compared to some other industries, such as tech or industrials. Plus, banks and miners usually trade on a lower price-earnings (P/E) ratio than other sectors (which helps maintain a higher dividend yield).
That combination leads to banking and mining sectors having comparatively high dividend yields, which supports the VAS ETF's own yield compared to something like a US shares ETF.
Seeing as the dividend yield of an ETF largely reflects the dividend yield of its underlying holdings (weighted by the size of each position), this enables the VAS ETF to provide sizeable dividend income to investors.
According to Vanguard, at 31 July 2025, the VAS ETF had a dividend yield of 3.2%. Franking credits aren't included in that figure – the grossed-up income is higher.
Is it a good time to buy?
A dividend yield of 3.2% is not bad, but it has been higher in recent history. The dividends of some important businesses have reduced in recent history, such as Fortescue Ltd (ASX: FMG), BHP, and Rio Tinto Ltd (ASX: RIO), because of a lower iron ore price impacting profitability.
Plus, the Vanguard Australian Shares Index ETF unit price has climbed another 9% this year, pushing down on the prospective yield because the underlying dividend income has not grown to match the rise in the valuation.
As an investment, overall, I believe the VAS ETF is still an effective tool to invest in the ASX share market and hopefully benefit from the long-term growth of the businesses involved.
However, in terms of dividend income, it's not the most appealing time to invest. The yield is not attractively high, and the size of the payout has been reducing recently. I view other investments that can provide stronger payout growth or a stronger yield as more appealing.
