Is VHY ETF a good buy for dividend income?

Is Vanguard Australian Shares High Yield ETF (ASX: VHY) a good buy for dividend income? It could be worth considering.

About VHY ETF

As the full name suggests, VHY ETF looks to invest in high yield Australian shares. When it comes to dividend income, Australian shares offer an advantage because they come with franking credits.

This ETF looks to maximise income with businesses that are expected to pay higher-than-average dividends. Real estate investment trusts (REITs) are excluded, whilst industry exposure is limited to 40% and exposure to one company is limited to 10%.

Some of its biggest holdings include: BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Wesfarmers Ltd (ASX: WES), Transurban Group (ASX: TCL) and Telstra Corporation Ltd (ASX: TLS).

Other similar ETFs

There are other ASX ETFs like Vanguard Australian Shares Index ETF (ASX: VAS) and BetaShares Australian Dividend Harvester (ASX: HVST).

How has the ETF performed?

Source: Best ETFs VHY 5-year share price chart.

Over the past five years it has delivered average total returns of 4.08% per year. However, that boils down to 6.4% in income distributions and a decline in capital value of 2.35% per annum.

Is VHY ETF a good buy for dividend income?

To specifically answer about dividend income – yes, it does seem to offer a better-than-market yield because of its underlying holdings.

However, generally the underlying businesses haven’t seen share price growth because their profit growth has been poor (at best). No growing profit probably means no sustainable growth of the VHY distribution. Indeed, many ASX shares like Telstra and Westpac have cut their dividends in recent years.

I’d rather start with a smaller dividend yield that grows, than a large one that may fall. Capital declines over the longer term is not attractive.

But there are plenty of other ETFs out there for growth and/or dividends. Check out our list of ASX ETFs.

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From 200+ ETFs in Australia, our top investment analyst has just identified his #1 ETF for 2021 and beyond.

Low fees? Check.

Long-term growth potential? Check.

Regular cash returns? Check!

This ETF makes investing in ETFs "Super-Easy".

Simply click here to access the full ETF report, ticker code, and step-by-step investment guide. Our expert's #1 ETF report is completely free.

No gimmicks, no payment, no credit card info. Just click the link below and enter your email address. We'll send you the report right away.

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At the time of publishing, the author of this article does not have a financial or commercial interest in any of the companies mentioned.

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