As well as providing investors with access to international markets, exchange traded funds (ETFs) can be used to generate income.
There are a number of ETFs out there that have been specifically designed to give income investors access to a large number of dividend shares.
Two which I think investors ought to consider buying today are listed below. Here's why I like them:
iShares S&P/ASX Dividend Opportunities ETF (ASX: IHD)
The first ETF for income investors to consider buying is the iShares S&P/ASX Dividend Opportunities ETF. This fund aims to provide investors with the performance of the S&P/ASX Dividend Opportunities Accumulation Index, before fees and expenses. It has been designed to measure the performance of a diverse group of 50 ASX-listed shares that offer high dividend yields and stability.
Among its holdings you'll find supermarket operator Coles Group Ltd (ASX: COL), banking giant Commonwealth Bank of Australia (ASX: CBA), iron ore miner Fortescue Metals Group Limited (ASX: FMG), and conglomerate Wesfarmers Ltd (ASX: WES). At present its 12-month trailing dividend yield stands at 4.1%. However, I suspect that this will start to increase at a solid rate once the pandemic passes and dividend payments return to normal.
VanEck Vectors Australian Banks ETF (ASX: MVB)
Another ETF for income investors to consider buying is the VanEck Vectors Australian Banks ETF. As you might have guessed by its name, this ETF gives investors exposure to the Australian banking sector. This means that through a single investment, you'll be buying a piece of Commonwealth Bank and the rest of the big four, the regional banks, and even Macquarie Group Ltd (ASX: MQG). I think this makes it a great option for investors that are wanting exposure to the banking sector, but aren't too sure which of the banks to buy.
Estimating the yield that the ETF will offer in FY 2021 is tricky because of the pandemic. However, when things return to normal, I would expect a yield in the region of 5% to 6%. For now, I would estimate a partially franked 4% yield over the next 12 months.
