The BetaShares NASDAQ 100 ETF (ASX: NDQ) is one of the most popular exchange-traded funds (ETFs) on the ASX, with net assets of $2.6 billion. It has managed to achieve good capital growth, though investors may be wondering about the potential of dividend income.
Over the last five years, the Betashares Nasdaq 100 ETF has risen by 78%. That's comfortably more than the S&P/ASX 200 Index (ASX: XJO), which has only risen by 22% over the same time period. But, that includes the COVID period.
One of the most important things to remember with an ETF is that the performance is dictated by the underlying holdings. If the underlying holdings, as a whole, go up in price then the ETF price should go up too (after accounting for fees).
ETFs are also meant to pass on the investment income of dividends received from the business holdings to investors as well.
This ETF owns 100 of the biggest businesses listed on the NASDAQ, such as Apple, Microsoft, Amazon.com, Alphabet and Tesla. The bigger the position in the portfolio, the more the company's dividend yield influences the whole ETF's yield.
But, some of the names, like Amazon.com, Alphabet and Tesla don't even pay a dividend to investors.
Dividend yield estimate
BetaShares says that the 12-month distribution from the BetaShares NASDAQ 100 ETF is 3.3%. That's the yield calculated by "summing the prior 12-month per unit distributions divided by the closing net asset value (NAV) per unit."
However, I think it's important to remember that ETFs also distribute crystallised capital gains to investors. So, if the ETF sells some of its shares and has made a profit, then that is included in the distribution. So, the actual dividend income of the ETF may not make up the whole distribution.
Between July 2019 to January 2023, the distribution yield has ranged between 2.35% to 5%, according to BetaShares.
Is BetaShares NASDAQ 100 ETF worth buying for passive income?
On the dividend income alone, I wouldn't suggest it's going to pay a big yield.
It's not surprising considering the current Microsoft dividend yield is only just above 1% and the Apple dividend yield is less than 1%, according to Google Finance.
However, when we look at the distributions by the ETF, it's a solid yield over the past few years. If its yield is around 3% over the next three years, that would be pretty good to me.
But, the main potential here, in my opinion, is capital growth. Over the last five years, it has returned an average of 15.2% per annum, which includes a drop of more than 20% since the start of 2022. Though, past performance is not a reliable indicator of future performance.
I think this group of businesses has an attractive future with global growth potential.
