Is Vanguard’s VHY ETF the Top Australian Income Solution for Investors?

April 29, 2025 02:45 PM AEST | By Team Kalkine Media

Is Vanguard’s VHY ETF the Top Australian Income Solution for Investors?

Exposure to Leading High-Quality Companies

The VHY ETF assembles a portfolio of 67 prominent ASX-listed businesses renowned for their high forecasted dividend yields. This diversified fund leans heavily towards financials, but it also offers exposure to sectors such as materials, energy, industrials, telecommunications, and utilities.
Notably, the ETF's largest holdings feature some of Australia's most reliable dividend players, including BHP Group Ltd (ASX:BHP) and Commonwealth Bank of Australia (ASX:CBA).

Beyond dividends, the companies in VHY have showcased an average earnings growth rate of 7.3% per annum. This growth component adds an appealing edge for those aiming to balance steady income with potential asset appreciation, particularly investors nearing or planning for retirement.

Attractive Yield with Franking Credit Advantages

The recent softness in Australian equity markets, coupled with some special dividend distributions, has pushed VHY’s running yield to approximately 7.96%. However, it’s worth noting that the longer-term average yield sits closer to a solid 5% per annum, maintaining its reputation as a consistent income provider.

An added bonus of investing in VHY is the access to franking credits, thanks to its portfolio of Australian companies. These credits effectively reduce the overall tax burden on dividend income. For instance, the latest VHY dividend was just over 12% franked, though historical averages often range between 30% and 35%.
This tax efficiency makes VHY even more attractive when compared to other fixed-income alternatives such as bonds.

Low Management Costs and Stability

VHY offers a cost-effective investment solution with a management fee of just 0.25% annually — equating to $25 for every $10,000 invested. Backed by Vanguard’s reputation and a substantial $4.5 billion in assets under management, VHY has demonstrated durability with a track record spanning almost 15 years.

This low-cost structure ensures that a larger portion of the income generated is retained by the investors, enhancing overall returns over time.

Alternative Income-Focused ETFs

While VHY holds a strong position, other equity-income ETFs are available for those seeking different exposures. These include the Betashares Australian Top 20 Equities Yield Maximiser Complex ETF (ASX:YMAX) and the Vanguard Australian Property Securities Index ETF (ASX:VAP), offering diversification into property-related income streams.

Overall, the Vanguard Australian Shares High Yield ETF (VHY) offers a balanced, income-focused solution that continues to appeal to many Australian investors.

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