Is Vanguard Australian Shares High Yield ETF (ASX:VHY) the best ETF for dividends?

Vanguard Australian Shares High Yield ETF (ASX: VHY) is one of the options to think about getting dividends from the ASX share market.

How does VHY ETF work?

It aims to provide low cost exposure to ASX shares that have a forecast higher-than-average dividend yield.

There is a maximum 40% sector exposure and 10% company exposure to ensure that it doesn’t become too invested in one particular sector such as financials or resources.

What shares does it own?

When you look at the top holdings of the VHY ETF, it’s very similar to the largest businesses on in the ASX 200 (ASX: XJO).

BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Wesfarmers Ltd (ASX: WES), National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ), Rio Tinto Limited (ASX: RIO), Telstra Corporation Ltd (ASX: TLS), Transurban Group (ASX: TCL) and Macquarie Group Ltd (ASX: MQG) are the biggest weightings.

It’s a who’s who of ASX blue chips.

In-fact, all it’s done is take out the business with more growth potential like CSL Limited (ASX: CSL).

Are the returns good?

Over the last five years, the VHY ETF has delivered an average distribution return of 6.5% per year. According to Vanguard, the yield is currently 3.6%.

However, the problem is that the total return has been an average of 9% over the last five years. That means it has only produced capital growth of 2.5% per annum over the last five years. In terms of overall returns, most other index-based ETFs have done better, particularly if you have a higher rate of income tax with the dividends.

So is VHY ETF a good idea for income?

It will produce income because of the underlying businesses that it’s invested in. But I believe that there are plenty of other ASX dividend shares that could be better for income.

Listed investment companies (LICs) could be good options such as WAM Leaders Ltd (ASX: WLE), WAM Microcap Limited (ASX: WMI) and Future Generation Investment Company Ltd (ASX: FGX).

There are also some individual ASX shares that may be able to provide income and long term growth like Brickworks Limited (ASX: BKW), Magellan Financial Group Ltd (ASX: MFG), Collins Foods Ltd (ASX: CKF) and Coles Group Ltd (ASX: COL).

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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, Jaz owns shares of Future Generation, Magellan and WAM Microcap.

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The information on this website is general financial advice only. That means, the advice does not take into account your objectives, financial situation or needs. Because of that, you should consider if the advice is appropriate to you and your needs, before acting on the information. In addition, you should obtain and read the product disclosure statement (PDS) before making a decision to acquire a financial product. If you don’t know what your needs are, you should consult a trusted and licensed financial adviser who can provide you with personal financial product advice. Please read our Terms & Conditions and Financial Services Guide before using this website.

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