It's hard to describe any Australian dividend stock as built to last. The nature of capitalism means that business models are constantly being tested and innovated against.
The dustbin of history is littered with companies that once seemed indispensable – Blockbuster, Kodak, General Electric and, more locally, Ansett and Franklins.
As such, there are only a few names that come close, at least in my mind, to being worthy of this title.
The Vanguard Australian Shares Index ETF (ASX: VAS) is one of them.
VAS is the most popular exchange-traded fund (ETF) and index fund on the ASX. As such, its name might be familiar to many readers.
It is this index fund's very nature that makes it built to last.
See, index funds are designed to move with the times. VAS is mandated to hold the largest 300 shares that are listed on the ASX. Whatever they may be.
Every three months, those 300 stocks are reassessed, and the index rebalanced. If any company has fallen out of favour and falls below that 300-stock threshold, it is dispassionately given the boot. Then, it is replaced with the up-and-comer that the invisible hand of the market has chosen to take its place.
In this way, the proverbial flowers of the ASX garden are watered and the weeds removed. The Vanguard Australian Shares ETF adds to winners and takes capital from losers. As such, investors always remain invested in the most successful stocks on the ASX over long periods of time.
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Why index funds like VAS are built to last
What's great for ASX investors is that an index fund like VAS holds many ASX shares that are strong dividend payers. That means investors are periodically paid an average of sorts of all of the income that the ASX 300 produces. This has historically resulted in meaningful dividend income, as well as franking credits. At present, VAS units sport a trailing dividend distribution yield of 3.15%.
This is why we can say this is also an ASX dividend stock built to last.
This partly explains why index funds like VAS have become so sought after with investors right around the world. Funds that track other major indexes, such as the American S&P 500, are enduringly popular on the international stage. Which is why many Australians also have them in their portfolios.
Their natures also make them passive investments, which is another aspect that many investors find attractive. Since the index fund essentially picks the winners for you, you can buy into the fund and not give it a moment's thought afterwards. Whilst it is in your bottom drawer, it will be doing the work of investing for you, without requiring any other input.
If it sounds like this less stressful and hassle-free way of investing suits your mindset and lifestyle, there's no reason not to keep at it. Even the legendary Warren Buffett has told us that most investors should just stick to index funds. With that kind of endorsement, there's very little left to say.
