Top 6 High Dividend Yield ETFs for Australian Investors

If you’re like me and you love getting paid for doing nothing, then this article is for you.

We’ll be going through 6 high-dividend-yield ETFs.

Remember that this article is general and doesn’t constitute personal financial advice.

As a shareholder, there are two main ways that you can make money from your investment: the first way is through capital growth, and the second way is through dividends.

To create this list, we looked at ETFs with high dividend yields and good capital growth. We excluded the ETFs that have had negative capital growth.

🤔Understanding Dividend ETFs

What Are Dividends?

Dividends are the profits that some companies decide to give to their shareholders. When a company makes a profit, it can decide to distribute its profits to its shareholders, or it can decide to reinvest its profits back into its business to grow. Or sometimes, they may even do a mix of both.

Benefits of High Dividend Yield ETFs

The best thing about dividends is, they can provide you with a passive source of income. You can choose to reinvest your dividends back into your investments, or you could even get them paid out to you in a bank account to invest in whatever you like.

🤑Top High Dividend Yield ETFs

VHY – Vanguard Australian Shares High Yield ETF

VHY is the Vanguard Australian Shares High Yield ETF. This is hands down one of the most popular dividend ETFs of all time. Management fees for this ETF are 0.25% per year, and the top holdings in this ETF include Commonwealth Bank, BHP, NAB, Westpac, and more.

This ETF invests in companies on the Australian Stock Exchange that have higher dividend yields compared to other Australian companies. This ETF aims to have a bit more diversification in its portfolio by restricting the proportion of any one industry to 40% of the total ETF and no more than 10% for any one company.

As you can see here, this ETF has a bit more exposure to the financial and material sectors. I created a test portfolio in ShareSight for educational purposes to see how much we would have after five years if we invested $10,000 into each of these ETFs.

If you invested $10,000 into VHY five years ago, you would have $11,916 today. You would have received $3,671 in dividends and $1,916 in capital growth. So that’s a dividend yield of 6.39% per year and a capital growth rate of 3.53% per year. But keep in mind that past performance isn’t a reliable indicator of future performance.

VAS – Vanguard Australian Shares ETF

VAS is the Vanguard Australian Shares ETF. This ETF invests in the top 300 companies on the Australian Stock Exchange.

While this ETF isn’t technically dividend-optimized, because of the nature of many Australian companies on the Australian Stock Exchange, this ETF does pay quite high dividend yields. Similar to VHY, a lot of these companies have franking credits attached to their dividends.

The top holdings in this ETF are BHP, Commonwealth Bank, CSL, NAB, Westpac, and more. The management fees for this ETF are 0.07% per year. If you invested $10,000 into this ETF five years ago, you would have $11,849 today. You would have received $2,909 in dividends and $1,849 in capital growth.

So that’s a dividend yield of 5.18% and a capital growth rate of 3.42% per year.

VYMI – Vanguard International High Dividend Yield ETF

VYMI is the Vanguard International High Dividend Yield ETF. This ETF isn’t available on the Australian Stock Exchange, but it is available on the US Stock Exchange.

The great news is you can still invest in this ETF with investing platforms such as Pearler. Pearler allows you to invest in both the Australian Stock Exchange and the US Stock Exchange.

The management fees for this ETF are 0.22%, and the top holdings in this ETF include Nestlé, Toyota, Shell, HSBC, Royal Bank of Canada, and more. The regions that make up this ETF include Europe, the Pacific, Emerging Markets, and North America.

If you invested $10,000 into this ETF five years ago, you would have $12,070 today. You would have received $2,247 in dividends and $1,636 in capital growth.

So that’s a dividend yield of 4.1% and a capital growth rate of 3.05%.

💸High Dividend and High Growth ETFs

ETHI – BetaShares Global Sustainability Leaders ETF

ETHI is the BetaShares Global Sustainability Leaders ETF. This ETF invests in companies that they deem as climate leaders and excludes companies that don’t meet their ethical criteria.

The management fees for this ETF are 0.59%. The top holdings for this ETF are Apple, Nvidia, Visa, Home Depot, Mastercard, Toyota, and more.

Even though this ETF is technically ethical, it has had really solid dividend yields. If we invested $10,000 into ETHI five years ago, we would have $17,285 today. We would have received $3,629 in dividends and $7,285 in capital gains.

That would give us a dividend yield of 6.32% per year and a capital growth rate of 11.44% per year. This is one of the best-performing ETFs from both a dividend and capital growth perspective.

Remember that past performance isn’t a reliable indicator of future performance, but it’s really interesting to see.

HACK – BetaShares Global Cybersecurity ETF

HACK is the Global Cybersecurity ETF. This ETF tracks the performance of some of the leading companies in the global cybersecurity space.

Similar to ETHI, this ETF has had really solid dividend yields over the past couple of years. The top holdings in this ETF include companies like CrowdStrike, Cloudflare, Okta, and more.

Just keep in mind that this ETF is heavily skewed towards the IT and computer technology sector, so it doesn’t have very broad exposure to a range of different industries and, therefore, could fluctuate a bit more compared to other ETFs.

The management fees for this ETF are 0.67%, which is a bit on the higher side because they actively pick out companies involved in the cybersecurity space.

If you invested $10,000 into HACK five years ago, you would have $16,828 today. You would have received $2,873 in dividends and $6,828 in capital growth.

So that’s a dividend yield of 5.13% per year and a capital growth rate of 10.85% per year.

But keep in mind that this ETF is heavily skewed towards the tech space, and past performance isn’t a reliable indicator of future performance. However, it’s really interesting to see.

TECH – Morningstar Global Technology ETF

TECH is the Morningstar Global Technology ETF. Similar to HACK, this ETF is heavily skewed towards the tech space, so it doesn’t have as much diversification as some of the other ETFs on this list. This means it could be more volatile compared to some of the other ETFs.

This ETF has management fees of 0.45%, and the top holdings in this ETF include companies like Adobe, Workday, and Block.

If you invested $10,000 into this ETF five years ago, you would have $13,709 today. You would have received $4,665 in dividends and $3,709 in capital growth.

So that’s a 7.87% dividend yield and a capital growth rate of 6.44% per year.

But keep in mind that past performance isn’t a reliable indicator of future performance.

💭Key Insights for Australian Dividend Investors

The Importance of Franking Credits

A unique benefit of investing in high-dividend-yield ETFs in Australia is something called franking credits. As you can see, VHY has quarterly income distributions, including any associated franking credits. Unlike many other countries around the world, dividends in Australia aren’t double-taxed, which provides a unique benefit to Australian investors interested in dividends.

So basically, what happens is, let’s say there’s a company, that would like to distribute some of their profits to their shareholders. The company will then pay the company tax rate of 30% on the profits before distributing them to shareholders. The shareholders will then receive the dividends and credit for the tax already paid by the company.

Depending on what your marginal tax rate is, if it is above 30%, you may need to pay a little extra tax to match your marginal tax rate. What this means is, that if you get a $1,000 dividend from a company in Australia that is fully franked, you’ll essentially get a tax credit, which can also offset the income you’ve made from your dividend.

Whereas, if you receive a $1,000 dividend from a company overseas, that doesn’t have a franking credit, you won’t get any of these extra tax benefits. You’ll need to pay more tax on the dividend, as it doesn’t have a franking credit attached. So that’s one of the benefits of investing in Australian companies.

🧐How to Invest in Dividend ETFs

Investing in dividend ETFs is quite simple. Firstly, you need to choose the right platform. Over here, we are big fans of Pearler. Pearler is an Australian investing platform that is user-friendly, very community-focused, and aesthetically appealing.

With Pearler, you can set up automatic payments and dollar-cost average. This streamlines the investment process and helps you stay on top of it. Since Pearler is connected to Sharesight, you can track your dividend income and capital growth with ease.

📈What Now

In this article, we’ve looked at high-dividend-yield ETFs and high-dividend-yield and high-growth ETFs. All of these ETFs have had solid performances over the past few years; however, it’s always important to note that past performance isn’t a reliable indicator of future performance. It’s important to always consider your financial goals when picking your ETFs. ETFs can be a great way to leverage dividends for long-term wealth.