The Reserve Bank of Australia (RBA) and the US Federal Reserve has made it difficult to find good sources of dividends these days.
Low interest rates have pushed people into the share market to look for a source of income. Many of the ASX’s leading ‘income’ shares have seen their share prices sent to expensive territory.
Investing in shares when they’re expensive probably isn’t a good idea. It could be better to go for a diversified investment like an ETF to find the necessary income.
Here are two ETFs to consider:
Vanguard Australian Shares High Yield ETF (ASX: VHY)
If you’re going to invest in ASX shares for income, why not go for an ETF that aims to maximise that yield?
The ETF is invested in 62 ASX shares which have higher forecast dividends relative to other ASX shares. Diversification is achieved here by liming industry exposure to 40% of the total ETF and 10% in any one business. Real estate investment trusts (REITs) are excluded from the ETF.
Just like the main ASX ETFs, this ETF is weighted to financial and resource businesses like Commonwealth Bank of Australia (ASX: CBA), BHP Group Ltd (ASX: BHP), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) as well as shares like Wesfarmers Ltd (ASX: WES), Telstra Corporation Ltd (ASX: TLS) and Transurban Group (ASX: TCL).
The earnings growth rate is slow, but as long as earnings slowly go higher over time then that’s all income-seekers need.
It has a dividend yield of 5.3% and grossed-up with franking credits it’s 7.2%.
BetaShares FTSE 100 ETF (ASX: F100)
Brexit has caused many investors to desert UK shares even though there are plenty of high-quality global like Royal Dutch Shell, BP, HSBC and GlaxoSmithKline on the London Exchange which have long histories and attractive dividends.
You’d think the UK will get Brexit sorted one way or the other soon enough, meaning a p/e ratio of around 12 for the UK’s biggest businesses could be too good to ignore.
Currency fluctuations are something to be aware of, but it might be a positive to have currency diversification in your portfolio.
This ETF has an underlying dividend yield of 5.1%, which looks pretty good when you consider how low interest rates are in the UK and Europe.
Both of these ETFs have very attractive dividend yields. Whilst franking credits give ASX shares an extra bonus, I’d rather diversify my portfolio with some cheap UK shares at the current share prices.
But there are plenty of income shares on the ASX with attractive yields and growing dividends like these dividend champions.
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Telstra Limited, Transurban Group, and Wesfarmers Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.