Vanguard Australian Shares High Yield ETF (ASX: VHY) is the biggest dividend-focused ASX ETF on the market.
With $56.3 billion in funds under management, it's clearly a favourite option among income-focused investors.
Buying an income-focused ETF is an easy way to gain exposure to the best ASX dividend-paying stocks on the market at any given time.
This is because most ASX ETFs follow an index, and index providers update them regularly (usually every quarter).
That's a handy service if you like hands-off investing. It means your ETF will always be up to date with market trends.
The VHY ETF tracks the FTSE Australia High Dividend Yield Index before fees.
According to Vanguard, this ASX ETF provides exposure to stocks that have higher forecast dividends relative to their ASX peers.
But that's not all.
Vanguard says the VHY ETF also provides good long-term capital growth, too.
That's a rare combination for equities.
Which stocks is VHY ETF invested in?
To ensure diversification, the VHY ETF doesn't invest more than 40% of funds in any one industry, and no more than 10% in one share.
Currently, VHY ETF holds 75 companies, 70% of which are large-cap stocks, and real estate investment trusts (REITs) are excluded.
Given income is the focus, this ASX ETF is overweight in financials, materials, and energy shares, and underweight in technology.
VHY ETF's top holdings today are BHP Group Ltd (ASX: BHP) shares at 10% of monies invested, Commonwealth Bank of Australia (ASX: CBA) at 9%, Westpac Banking Corp (ASX: WBC) at 7%, National Australia Bank Ltd (ASX: NAB) at 7%, Telstra Group Ltd (ASX: TLS) at 6%, ANZ Group Holdings Ltd (ASX: ANZ) at 5%, and Woodside Energy Group Ltd (ASX: WDS) at 5%.
What is $10,000 invested 5 years ago now worth?
The VHY ETF is trading at $77.71 per unit on Thursday, up 0.5%.
On 25 September 2020, VHY closed at $51.72 apiece.
If you had put $10,000 into the VHY ETF then, it would have bought you 193 units (for $9,981.96).
There's been a capital gain of $25.49 per unit since then, which equates to $4,919.57.
Then there are the dividends, which is the main form of return investors want with this ETF.
Since 25 September 2020, VHY has paid a total of $20.45 (rounded) per unit in dividends.
That equates to $3,946.85 over five years.
Total returns…
We'll assume you took those dividends as cash, given that most income-focused investors use dividends to fund their lifestyles.
(However, you do have the option to reinvest your VHY ETF dividends to generate even higher returns through compounding over the long term. The VHY ETF has a dividend reinvestment plan (DRP) to help you do this.)
Your capital gain of $4,919.57 plus your distributions of $3,946.85 gives you a total 5-year return, in dollar terms, of $8,866.42.
Remember, you invested $9,981.96 buying your 193 units of VHY on 25 September.
This means you have received a total return, in percentage terms, of 89% over five years.
(And that excludes the benefit of annual franking credits along the way to reduce your tax!)
