One of the main reasons to invest in shares is for the dividends they can pay. Shares represent part ownership in a company, so shareholders have a right to a share of company profits. But what happens when a company has a bad year? Well, dividends can be cut, reducing shareholder income.
Shareholders can reduce the impact of a bad year for an individual company on their portfolio by allocating funds across a range of companies across different sectors and industries. This is known as diversification, and serves to reduce the risk of the overall portfolio. After all, it is less likely that 20 streams of income will be cut off than one.
Exchange traded funds (ETFs) offer a viable shortcut to this process by themselves holding a basket of securities. Investors can trade the ETF on the ASX like any other share, and in doing so gain exposure to the securities held by the ETF.
High Yield ETFs
For yield-seeking investors, there are a number of specialised ETFs that exist to cater to this preference. Here’s a closer look at 2 such shares.
The iShares S&P/ASX Dividend Opportunities ETF (ASX: IHD) provides exposure to 50 ASX-listed stocks that offer high dividend yields while also meeting stability, tradeability, and diversification requirements. The ETF returned 16.47% in the year to 31 October and has a 12-month trailing yield of 6.59%.
Management fees are 0.30% and distributions are made quarterly. Top holdings include Wesfarmers Ltd (ASX: WES) (10.62%), Westpac Banking Corp (ASX: WBC) (10.42%), Commonwealth Bank of Australia (ASX: CBA) (9.88%), Woodside Petroleum Limited (ASX: WPL) (9.84%), Rio Tinto Limited (ASX: RIO) (9.02%), and BHP Group Ltd (ASX: BHP) (8.94%).
The SPDR S&P Global Dividend Fund (ASX: WDIV) seeks to track the performance of the S&P Global Dividend Aristocrats AUD Index. The fund made returns of 15.65% in the year to 31 October and had a dividend yield of 4.79%.
Management fees are 0.5% and distributions are made twice yearly. The ETF held 99 stocks at 31 October. Holdings were spread across Canada (21.96%), United States (21.58%), United Kingdom (14.02%), France (7.29%), Japan (7.14%), and Switzerland (4.40%), amongst others.
Top holdings include Hennes & Mauritz AB-B SHS (2.00%), AT&T Inc (1.66%), Klepierre (1.57%), IGM Financial Inc (1.54%), IG Group Holdings PLC (1.53%), and Compass Minerals International (1.50%).
Dividend-seeking investors have multiple options in the hunt for yield. ETFs are a convenient option for rapid diversification (both local and international). Investors can gain access to dozens of high-yielding shares in a single trade, opening the door to new investment opportunities.
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