Are you looking for income? Vanguard Australian Shares High Yield ETF (ASX: VHY) could be the answer.
What is Vanguard?
Vanguard is a funds management business that is owned by its own investors. It was founded in 1975 and now has (or had) around AU$9.7 billion. It has 192 funds in the US, and 232 funds in markets outside the US. It’s a world leader in providing low-cost ETFs.
What’s the idea of Vanguard Australian Shares High Yield ETF?
Some investors are just focused on capital growth. Other investors like the idea of a mix of dividends and capital growth. This ETF is largely focused on just high yield dividend shares, as the name may suggest.
The ETF is invested in ASX shares that have a higher-than-average dividend yield compared to other ASX shares. Diversification is achieved by restricting the amount that can be invested in any one industry to 40% of the overall ETF and only 10% can be invested in one company. Australian real estate investment trusts (REITs) are also excluded from this index.
What’s the ETF’s dividend yield?
Obviously the main thing people want to know is the potential income. According to Vanguard (and Institutional Brokers’ Estimate System (IBES) estimates), the Vanguard Australian Shares High Yield ETF has a forecast dividend yield of 4.4%, with franking credits that forecast yield increases to 5.7%.
What are some of the shares that it owns?
Looking at the top 10 holdings, its biggest positions are BHP (ASX: BHP), CBA (ASX: CBA), Wesfarmers (ASX: WES), Westpac (ASX: WBC), Transurban (ASX: TCL), NAB (ASX: NAB), Telstra (ASX: TLS), ANZ (ASX: ANZ), Rio Tinto (ASX: RIO) and Macquarie (ASX: MQG).
Does it make good total returns?
Capital growth is important. Share prices will grow if earnings are growing. If earnings are not growing then the share price can’t sustainably rise and dividends are unlikely to grow much either.
The ETF has made total returns of 0.41% per annum over the past five years. That means if you take dividends out of it, the capital value has actually gone backwards. COVID-19 has partially caused that negative result, but even on 21 February 2020 the capital value of VHY was lower than five years ago.
Is the ETF a good choice for investors looking for income?
It doesn’t make much sense to me to invest in something where you barely make any capital growth. I’d rather invest in shares that have solid yields and can make positive capital returns. Something like Rural Funds (ASX: RFF), Amcor (ASX: AMC) or Ausnet Services (ASX: AST).