Under the Spotlight: Vanguard Australian Shares High Yield ETF ($VHY)

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Australia’s stock market might not deliver the same capital growth as Wall St’s tech heavyweights. But it does have a major advantage: yield.

Australian stocks rank among the world’s strongest dividend payers. The S&P/ASX 200 has historically delivered a yield of around 4–4.5%. The S&P 500 by contrast pays a dividend yield of just over 1%, while the tech-heavy Nasdaq 100 is even lower.

For Australians focused on income, Vanguard’s Australian Shares High Yield ETF ($VHY) has become a go-to. 

The fund holds a portfolio of large-cap companies with the highest forecast dividend yields on the ASX. Over the past year, it’s delivered an average running yield of 7.4%.

With ASX earnings season in full swing, now’s a timely moment to revisit dividend strategies. This is when companies report interim results and declare their next round of payouts, giving investors a real-time read on income potential.

Dividend kings

So far this earnings season, several large caps have kept the cheques coming.

Mining giant BHP Group ($BHP) announced a stronger-than-expected dividend, supported by surging copper demand and output. Its fully franked interim dividend of US$0.73 per share marked a 46% increase year on year.

Commonwealth Bank ($CBA) also delivered another solid payout of $2.35 per share, reinforcing its reputation as one of the ASX’s most reliable income stocks.

As the two biggest firms on the ASX, it’s no surprise these companies make up a significant share of $VHY. BHP accounts for roughly 12% of the portfolio, while CBA sits close to 9%. Together, they form a core part of the fund’s income stream.

Other major holdings include Westpac ($WBC), NAB ($NAB), ANZ ($ANZ) and Rio Tinto ($RIO), alongside Telstra ($TLS) and infrastructure giant Transurban ($TCL). These companies operate in established, cash-generative industries – a key reason they’ve become staples in dividend portfolios.

That concentration is both a strength and a risk. It can support strong income in favourable conditions. But it also leaves the ETF exposed to sector-specific shocks. 

Banking on it

One defining feature of $VHY is its heavy tilt towards Australia’s biggest banks.

The ETF tracks the FTSE Australia High Dividend Yield Index, which naturally favours sectors that generate stable cash flow and return it to shareholders. Historically, that’s meant financials dominate.

Today, around 41% of the ETF sits in the financial sector. These are slower-moving, blue-chip companies that prioritise dividends and capital discipline over aggressive expansion.

That positioning can work in a higher-rate environment. Banks often benefit when interest rates rise, as lending margins widen and profitability improves. This earnings season, all four major banks surprised on the upside, delivering earnings growth while maintaining strong capital positions.

Materials is the second-largest exposure at about 22%, with holdings including BHP, Rio Tinto and Woodside. These companies can be more volatile, as payouts are tied to commodity cycles. But when prices are strong, dividends can surge.

The trade-off is clear. Investors in $VHY are making a deliberate bet on value and income, over growth. The fund is structurally underweight in sectors like technology and healthcare, where companies typically reinvest profits.

Chasing dividends

Dividend investing isn’t for everyone. High payouts can come at the expense of growth. Companies focused on expansion tend to reinvest profits to fund innovation and future earnings, rather than handing the cash back to shareholders.

There’s also a tax trade-off. Dividends are taxed as income in the year you receive them, even if you reinvest. By contrast, if a company keeps those profits and grows its share price instead, you don’t pay tax until you sell. Over time, that deferral can make growth strategies more tax efficient.

Still, for investors chasing reliable income, especially retirees, dividends can be hard to beat.

Australia’s franking credit system adds another layer of appeal. Fully franked dividends come with a tax credit for the corporate tax already paid. That’s where an SMSF or superfund can make a big difference.

For example, $1M invested in $VHY would have generated roughly $74K in income over the past year based on recent yields. If held within an SMSF, the tax rate would typically be 15% while you’re still working, or 0% in retirement. That means many retirees can receive both the dividend income and franking credits tax-free, effectively boosting overall returns.

It’s a controversial policy, but one reason dividend portfolios remain popular – even when interest rates go up. Even with savings accounts offering rates of up 5%, many investors prefer equity income for its tax advantages and growth potential.

Measuring up

$VHY is not the only income ETF on the ASX, but it’s one of the most established. With a yield of 7.4% and a performance that outpaces the S&P ASX/200 index over the last 5 years, it’s easy to see the appeal.

Over the past five years, $VHY has delivered returns of 12.7% per year (assuming dividends reinvested), compared with around 10.5% for the S&P/ASX 200 on a total return basis (to Jan 30, 2026). Over the past 12 months, it returned just over 13%, versus about 7.4% for the benchmark.

Here’s how it stacks up to other dividend ETF options on the ASX:

• Global X S&P/ASX 200 High Dividend ETF ($ZYAU): 4% yield (over 12 months)

• SPDR MSCI Australia Select High Dividend Yield Fund ($SYI): 11.8%

• iShares S&P/ASX Dividend Opp ESG Screened ETF ($IHD): 4.28%

• Russell Inv High Dividend Australian Shares ETF ($RDV): 4.4%

There are also alternative income strategies that focus on sustainability over headline yield. Some funds aim to balance income with growth, reducing exposure to cyclical sectors like mining.

$VHY screens for high forecast dividends and may rotate holdings, at times selling stocks after dividends are paid rather than holding for long-term capital growth. This can lead to portfolio turnover as companies move in and out of favour. 

The ETF charges a relatively low management fee (MER) of 0.25%. That’s not as cheap as many passive index funds – $VAS has a fee of just 0.07% – but it’s comfortably below the average. 

Is it a buy?

That depends on what you want from your portfolio.

If your goal is long-term capital growth, $VHY may not be the ideal fit. The fund is structurally underweight in the sectors driving global markets, particularly technology and AI. Over time, that could mean lagging returns compared with more growth-oriented or diversified strategies.

But if you’re building an income-focused portfolio, it offers a straightforward way to access Australia’s dividend culture in a single trade.

Investors gain exposure to many of the country’s largest income-generating companies, along with franking benefits and a yield that, for the moment at least, outpaces most cash alternatives. 

As always, consider how it fits within your broader strategy and risk tolerance. Past performance is not a reliable indicator of future performance.

This is not financial advice nor a recommendation to invest in the securities listed. The information presented is intended to be of a factual nature only. Past performance is not a reliable indicator of future performance. The author of this article and other employees of Stakeshop Pty Ltd may hold positions or have financial interests in the company (or companies) discussed above. As always, do your own research and consider seeking financial, legal and taxation advice before investing.