Could Vanguard Australian Shares High Yield ETF (ASX: VHY) be a good investment option to consider for income?
What is Vanguard Australian Shares High Yield ETF?
It’s an exchange-traded fund (ETF) that is about giving Aussies exposure to higher-yielding ASX shares compared to others on the ASX.
Investment diversification is achieved by limiting the amount of exposure to any one industry to 40% of the total ETF and 10% in any one company. Real estate investment trusts are also excluded from the index.
What shares are in the ETF?
At the end of August 2021, it had a total of 64 positions. Just like the broader ASX 200 (ASX: XJO), a lot of the portfolio is invested in financial businesses as well as resources. Between just those two industries, the total exposure is around 62%.
In terms of the actual holdings, we are talking about names like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Wesfarmers Ltd (ASX: WES), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), Telstra Corporation Ltd (ASX: TLS), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Rio Tinto Limited (ASX: RIO) and Transurban Group (ASX: TCL).
How big is the dividend yield?
ETFs just pass through the dividends they receive from the holdings.
Looking at the Vanguard’s forecast dividend yield, it’s 4.9%. Including the franking credits, which increases the yield to be the ‘grossed-up yield’, the forecast yield is 6.7%.
That yield is quite a bit higher than what BetaShares Australia 200 ETF (ASX: A200) is likely to pay over the next 12 months.
Should investors like Vanguard Australian Shares High Yield ETF?
The yield is undoubtedly high. If investors are just looking for their return to come from dividends, then it’s not a bad option. However, I’m not sure about the effectiveness of going for this group of businesses.
Over the last 10 years, the ETF has delivered an average return per year of 9.8%. That’s not bad. But only 3.4% per year of that came from capital growth, which is a very low number considering all of the growth that the international market has seen.
Whilst I do like dividends, I think there are several listed investment companies (LICs) that could make more effective choices for a combination of dividends and capital growth over time.
