Vanguard Australian Shares High Yield ETF: A Dividend-Focused Option with a High P/E Ratio

The Vanguard Australian Shares High Yield ETF (VHY) provides low-cost exposure to higher-yielding ASX shares with a forecast partially franked dividend yield of 4.3% and grossed-up dividend yield of 5.7%. Over the past ten years, it has delivered an average distribution return of 6.5%. While it is a solid option for dividend income, the valuation is not appealing for strong total returns, making it less attractive for investors.

The Vanguard Australian Shares High Yield ETF (ASX: VHY) is a leading exchange-traded fund (ETF) that provides investors with exposure to higher-yielding Australian Securities Exchange (ASX) shares. The ETF is designed to offer low-cost access to companies with higher forecast dividends relative to other ASX-listed companies. Security diversification is achieved by restricting the proportion invested in any one industry to 40% of the total ETF and 10% in any one company. Australian Real Estate Investment Trusts (A-REITs) are excluded from the index.

At the end of June 2025, the VHY ETF had a forecast partially franked dividend yield of 4.3% and a grossed-up dividend yield of 5.7%, including franking credits. Over the past ten years, the ETF has delivered an average distribution return of 6.5%. This performance includes both dividend income and crystallised capital gains from the portfolio's holdings.

The ETF's portfolio includes companies such as Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC), Telstra Group Ltd (ASX: TLS), Woodside Energy Group Ltd (ASX: WDS), ANZ Group Holdings Ltd (ASX: ANZ), Transurban Group (ASX: TCL), Macquarie Group Ltd (ASX: MQG), and Rio Tinto Ltd (ASX: RIO) [1].

However, the valuation of the VHY ETF is a concern. At the end of June, the ETF had a price/earnings (P/E) ratio of 16.5x, which seems quite high for a fund full of slow-growing ASX bank shares and ASX mining shares. While the ETF is a solid option for dividend income, the valuation may not be appealing for investors seeking strong total returns. Therefore, it might be more attractive for investors to pick and choose individual ASX dividend shares [1].

References:
[1] https://www.fool.com.au/2025/07/27/is-the-vanguard-australian-shares-high-yield-etf-vhy-unit-price-a-buy-for-passive-income/