The Vanguard Australian Shares High Yield ETF (ASX: VHY) is a very appealing option for a high dividend yield and it could be a strong option for passive income.
The purpose of the VHY ETF is to provide low-cost exposure to ASX shares that have higher forecast dividends relative to other ASX shares.
It achieves diversification by restricting the proportion of the portfolio invested in any one industry to 40% of the total ETF and 10% in any one company. Australian real estate investment trusts (A-REITs) are excluded from the portfolio entirely.
Given that many of the ASX's largest blue-chip shares also offer sizeable dividend yields, it's not surprising that many of its biggest holdings are also the largest in Australia.
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Major holdings
At the end of August 2026, its biggest holdings were:
- BHP Group Ltd (ASX: BHP)
- Commonwealth Bank of Australia (ASX: CBA)
- National Australia Bank Ltd (ASX: NAB)
- Westpac Banking Corp (ASX: WBC)
- ANZ Group Holdings Ltd (ASX: ANZ)
- Rio Tinto Ltd (ASX: RIO)
- Woodside Energy Group Ltd (ASX: WDS)
- Macquarie Group Ltd (ASX: MQG)
- Telstra Group Ltd (ASX: TLS)
- Transurban Group (ASX: TCL)
Perhaps unsurprisingly, more than 70% of the portfolio is invested ASX financial shares, ASX mining shares and ASX energy shares, which are known for paying large passive income most years.
The portfolio has 92 holdings, though the biggest names carry the largest weightings. The ten names I highlighted above accounted for 61.6% of the total ETF portfolio.
VHY ETF dividend yield
Because the portfolio focuses on passive income and the attractive franking credits that can come with dividends paid by Australian companies, Vanguard reports its dividend yield both excluding and including franking credits.
According to the forecast dividends from FactSet – which Vanguard uses as a dividend data provider – the VHY ETF dividend yield excluding franking credits is forecast to be 4.2%.
Including franking credits (sometimes referred to as a 'grossed-up dividend yield'), the forecast dividend yield is 5.6%.
What would it take to generate $1,000 of passive income?
The number of VHY ETF shares (called 'units') needed to generate $1,000 in dividends depends on whether we include franking credits in the total.
If we exclude franking credits, an investor would likely need about 282 VHY ETF units to generate $1,000 in passive income, assuming the dividend projection is close to reality.
If franking credits are included, then an investor would likely need an estimated 212 VHY ETF units.
It's a solid option, with the dividends coming from a somewhat diversified portfolio. However, I'd want to add other ASX shares in there too for additional dividend diversification because it is quite heavily focused on a limited number of industries and a tilt towards a few large names.
