Investors buying the Vanguard Australian Shares High Yield ETF (ASX: VHY) probably do so with the expectation of fat, and franked, dividends.
After all, it's all in the name of this exchange-traded fund (ETF). Like most ASX ETFs, VHY holds an underlying portfolio of ASX shares. In this case, those shares number about 75, and are selected based on their past dividend performance, as well as their perceived ability to sustain those shareholder payments.
Some of this ASX ETF's current top holdings include Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), BHP Group Ltd (ASX: BHP), and Telstra Group Ltd (ASX: TLS).
With most blue-chip ASX dividend shares offering yields of between 3% and 5% today, you would expect this ETF to offer something similar.
But what might surprise investors is that VHY units are today trading on a trailing dividend yield of almost 9%.
Want proof? Well, VHY has paid out four dividend distributions over 2025, as is its norm. Those dividends, paid out in January, April, July, and October of this year, were worth $1.04, $2.43, $2, and $1.10 per unit, respectively.
Plugging that annual total of $6.57 per unit into the current VHY unit price of $77.24 (at the time of writing), we get a trailing yield of 8.97%.
That's more than double what most blue-chip ASX 200 stocks currently have on the table.
So does this make VHY a screaming buy for dividends today?
Well, before investors rush off to buy this ASX ETF for that high income potential, let's discuss a major caveat.
Is the VHY ETF a buy for that 9% dividend yield?
There are two ways an ETF can pay dividend distributions to its investors. The first is by passing through the dividend income it receives from its underlying portfolio. That has almost certainly funded part of VHY's monstrous 2025 payout. But given the yields available on most major blue-chip shares right now that we discussed above, it's also almost certainly not the only source of this income.
The other way ETFs fund dividend distributions is by 'rebalancing' their portfolios and distributing any resulting profits. Like most ETFs, VHY's underlying index has rules that it operates under. According to Vanguard, these include "restricting the proportion invested in any one industry to 40% of the total ETF and 10% for any one company".
Adhering to these rules has likely resulted in the outsized dividends investors have enjoyed over 2025. Whilst this has been wonderful for existing investors, it also indicates that this is a one-off bonanza for 2025, not an indication of an ongoing trend.
We can see evidence of this in VHY's past paouts. Although 2025 resulted in investors bagging $6.57 per unit in dividend distributions, 2024 saw investors receive a total of $3.98 in dividend distributions per share. In 2023, the total was just $3.43.
Instead of that 8.97% yield, those payouts would result in yields of 5.43% and 4.68% at today's pricing. Those are clearly still hefty yields, but nothing close to 9%. That once again reiterates that 2025's dividend distributions look like a lucky windfall more than anything else.
So yes, the near-9% yield on the Vanguard Australian Shares High Yield ETF is accurate. But it certainly doesn't indicate that investors will actually get 9% on their money if they buy units today.
