Well, 2020 has been a tough year to hold ASX shares for both growth and income. Although many ASX share prices have recovered from the lows we saw back in March, many others haven’t. And when it comes to dividend income, the picture is even bleaker. Former dividend heavyweights from the ASX banks to Transurban Group (ASX: TCL) and Sydney Airport Holdings Pty Ltd (ASX: SYD) have slashed their payouts this year. And ASX dividend shares that cut their dividends aren’t normally rewarded with share price growth. So where to turn for growth and income in 2020?
Well, I think the 2 exchange-traded funds (ETFs) named below are a great start. ETFs have an advantage over individual shares because they hold a basket of different companies. If a company’s share price drops, it is proportionally sold out of the ETF (and vice-versa if a share price rises). In this way, an ETF can help capture a winner and reject a loser.
Growth and income ETFs:
1) Vanguard Australian Shares Index ETF (ASX: VAS)
This ETF from Vanguard simply tracks the largest 300 companies on the ASX, with weightings based on market capitalisation. The ASX is well-known for its tendency to yield relatively large dividend income, likely due to our unique franking system. As I flagged earlier, not all ASX shares are paying dividends in 2020.
But it’s (indirectly) for this reason that former dividend stalwarts like Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) don’t carry as much weight in VAS as they would have done last year and prior. Instead, companies like CSL Limited (ASX: CSL), Woolworths Group Ltd (ASX: WOW) and Wesfarmers Ltd (ASX: WES) have grown to take a bigger slice of this ETF. And it so happens that all of these companies have kept their dividends intact this year.
As such, I think this diversified ETF is a great bet for both future growth and income. Currently, VAS is offering a trailing dividend yield of 4.02%, which comes partially franked as well.
2) BetaShares Nasdaq 100 ETF (ASX: NDQ)
This ETF from BetaShares looks beyond our shores, tracking the largest 100 companies in the US-based Nasdaq exchange. The Nasdaq is known to be the place where tech companies prefer to be listed on. As such, you will find most of the ‘big tech’ names at the top of its tables. Apple, Amazon.com, Microsoft, Facebook and Alphabet (owner of Google) make up the top 5 holdings.
Normally, tech shares have a reputation for being all grow, no show when it comes to growth versus income. But this ‘dot-com era’ reputation doesn’t really square with reality anymore. Apple and Microsoft are now dividend shares in their own right. And whilst Amazon, Facebook and Alphabet still don’t pay income today, other high-weighted shares in NDQ like Intel, Costco and PepsiCo do. Because of this, NDQ offers a surprisingly substantial trailing yield of 2.7% on current prices. As such, I think it’s a top investment for both growth and income right now.
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Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool’s board of directors. Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Sebastian Bowen owns shares of Alphabet (A shares) and Facebook. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of and recommends Alphabet (A shares) and Facebook. The Motley Fool Australia's parent company Motley Fool Holdings Inc. owns shares of BETANASDAQ ETF UNITS. The Motley Fool Australia owns shares of Transurban Group. The Motley Fool Australia has recommended Alphabet (A shares), BETANASDAQ ETF UNITS, and Facebook. 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.
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