2020 is shaping up to be a year to forget when it comes to dividends. We have seen ASX companies cut dividends across the board this year, including from some ASX income heavyweights.
Dividends from ASX banks like Westpac Banking Corp (ASX: WBC) have gone up in smoke. It’s the same with distributions from real estate investment trusts (REITs) like Scentre Group (ASX: SCG) and would-be dividend aristocrat Ramsay Health Care Limited (ASX: RHC).
It’s a brave new world for income investors, that’s for sure.
That’s why I think a great strategy for investors seeking dividend income in 2020 is to go for diversification. With an exchange-traded fund (ETF), you can buy dozens (if not hundreds) of income-paying companies within one share!
Here are 3 ideas to get you started:
Vanguard Australian Shares High Yield ETF (ASX: VHY)
This ETF from Vanguard aims to hold a large basket of ASX dividend-paying shares. It currently holds 62 ASX-listed companies, which include the big banks, BHP Group Ltd (ASX: BHP), Telstra Corporation Ltd (ASX: TLS) and Wesfarmers Ltd (ASX: WES).
Although many of these holdings will be pulling back on their dividends in 2020, many will not as well. All in all, I see this ETF as a collection of some of the best yielders on the ASX.
SPDR S&P Global Dividend Fund (ASX: WDIV)
This ETF can be used as a great compliment to VHY as it invests in top-notch dividend payers from around the world.
WDIV only holds stocks that have maintained or increased their dividends over the past 10 years – which is a great filter in my view. There are many defensive companies here, ranging from the utilities sector to energy, REITs and ‘sin stocks’.
WDIV has a trailing dividend yield of 6.33%, which isn’t bad at all and will provide a solid stream of passive income. Such diversity can do wonders for an ASX-dominated dividend portfolio in my view and as such, I think this ETF is one that any income investors should consider.
iShares S&P/ASX 20 ETF (ASX: ILC)
This ETF from BlackRock is very simple – it simply holds the top 20 companies on the ASX. CSL Limited (ASX: CSL) is, of course, the top holding, followed by the big 4 banks, BHP and Woolworths Group Ltd (ASX: WOW).
So why this ETF over VHY? Well, it’s a more conservative choice in that it is defined by holding the largest companies on the ASX – all of which pay dividends. It is a little concentrated in the banking and resources sectors, but the largest holding, CSL, is a notable exception. ILC boasts a trailing dividend yield of 5.52%, which also comes with some franking credits.
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Motley Fool contributor Sebastian Bowen owns shares of SPDR S&P Global Dividend Fund and Vanguard Australian Shares High Yield Etf. The Motley Fool Australia has no position in any of the stocks mentioned. 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.