The Vanguard MSCI Index International Shares ETF (ASX: VGS) is a well-liked option for Australian investors looking for diversified exposure to international markets in the realm of passive investing. In addition to capital development, one of VGS’s alluring features is its dividend payments, which offer a steady stream of income all year round. This blog post will explain the VGS dividend, its frequency of payment, factors that affect its amount, and important tax and strategy information for Australian investors.
What is VGS?
VGS is an exchange-traded fund (ETF) that tracks the MSCI World ex-Australia Index, giving investors access to over 1,500 large- and mid-cap stocks from developed markets including the United States, Europe, Japan, and more. It deliberately excludes Australian shares, making it a useful tool for portfolio diversification.
Does VGS Pay a Dividend?
Yes — VGS pays a quarterly dividend (technically called a “distribution” in ETF terminology). These payments are derived from the dividends received from the underlying global shares held by the ETF, after management fees and any other fund expenses.
Dividend Schedule
VGS typically distributes income in March, June, September, and December. The exact amount varies each quarter depending on:
- Dividends paid by the underlying companies,
- Currency exchange rate movements (since earnings are in foreign currencies),
- Fund expenses and rebalancing activities.
Historical Dividend Yields
The distribution yield for VGS typically sits in the range of 1.5% to 2.5% annually, though this fluctuates with market conditions and dividend policies of international companies.
For example:
- In 2023, VGS paid a total distribution of approximately $2.25 per unit, translating to a yield of around 2%, depending on the purchase price.
How Are VGS Dividends Taxed in Australia?
Dividends from VGS are not franked, as they originate from overseas companies. Instead, they are treated as foreign income and will show up in your annual AMMA (Annual Tax Statement) from Vanguard.
Here’s what you need to know:
- You may receive foreign income tax offsets if foreign tax was withheld before the income reached you.
- You must report both the gross foreign income and any foreign tax paid on your Australian tax return.
- VGS distributions may also include capital gains, interest income, or other components, not just dividends.
Pros and Cons of VGS Dividends
Pros:
- Quarterly income stream – reliable for those seeking passive cash flow.
- Diversification – reduces reliance on Australian dividends, which are heavily concentrated in financials and resources.
- Automatic reinvestment option (DRP) – you can reinvest distributions to compound your returns.
Cons:
- No franking credits – unlike Australian shares, VGS doesn’t offer tax offsets for dividends.
- Currency exposure – movements in the AUD/USD and other exchange rates can impact the income received.
- Foreign tax complexity – slightly more complicated tax reporting due to foreign income components.
Should You Invest in VGS for the Dividend?
If you’re focused purely on high dividend yield, VGS might not be the best pick — Australian ETFs like VHY or LICs such as AFIC and Argo offer better yields (often with franking). However, if your goal is long-term wealth building with global diversification, VGS is an excellent option, and the dividends are a helpful bonus.
It suits:
- Accumulators reinvesting income for compounding growth.
- Retirees who want international exposure in their income stream.
- Tax-conscious investors comfortable managing foreign income at tax time.