The Vanguard Australian Shares Index ETF (ASX: VAS) is one of the largest exchange-traded funds (ETF) on the ASX, and it’s known for having a sizeable dividend yield.
The VAS ETF allows investors to gain exposure to the S&P/ASX 300 Index (ASX: XKO), which is an index of 300 of the largest businesses on the ASX.
Some of the biggest businesses in the portfolio are BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), Wesfarmers Ltd (ASX: WES), Macquarie Group Ltd (ASX: MQG), Rio Tinto Ltd (ASX: RIO) and Woodside Energy Group Ltd (ASX: WDS).
I think it’d be fair to say that every one of the above stocks could be classified as an ASX dividend share with a decent dividend yield.
The Vanguard Australian Shares Index ETF simply passes through the dividends it receives onto owners of VAS ETF units. Therefore, it’s beneficial if the holdings provide a good dividend yield.
Let’s look at what it could take to generate $1,000 of passive income from the fund.
Targeting $1,000 of passive income from Vanguard Australian Shares Index ETF
Every month, Vanguard tells investors about various statistics regarding the fund.
For July, Vanguard reported that the VAS ETF had a dividend yield of 3.1%. That’s not a huge yield, but it’s significantly more than what’s on offer from the international share market or US share market.
It’s not guaranteed to have a 3.1% dividend yield in the coming 12 months, but it’s the best figure we can use for this calculation.
To generate $1,000 of passive income with a 3.1% dividend yield, you’d need an investment of $32,258, so that’d mean buying 286 or 287 VAS ETF units.
The VAS ETF is able to provide a high dividend yield because more than 58% of the portfolio is invested in ASX bank shares and ASX mining shares. Those sectors typically have lower price/earnings (P/E) ratios and relatively generous dividend payout ratio, which both affect the dividend yield.
Other markets, like the international share market or US share market, are focused on other sectors like technology businesses, which usually have a lower dividend payout ratio and a high P/E ratio. That results in a much lower dividend yield.
The VAS ETF isn’t dominated by growth stocks, so I’m not expecting significant capital growth in the coming years, though the dividend yield could remain pleasing.
The post How much must I invest in VAS ETF shares to earn a $1,000 passive income in 2027? appeared first on The Motley Fool Australia.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group and Wesfarmers. The Motley Fool Australia has recommended BHP Group, Macquarie Group, and Wesfarmers. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.