Individual ASX dividend shares can be a great source of passive income. A second income can be created from ASX-listed exchange-traded funds (ETFs).
Many ETFs are focused on global shares, which typically come with a low dividend yield. Investors can certainly look at the Vanguard Australian Shares Index ETF (ASX: VAS) for dividends, but there are two other ASX ETFs I want to talk about.
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Betashares FTSE 100 ETF (ASX: F100)
This ASX-listed ETF gives investors access to the UK share market – it owns 100 of the largest businesses listed in London.
There are a number of appealing businesses in the portfolio, which have relatively low valuations and reasonably generous dividend payout ratios. This combination usually leads to an attractive dividend yield.
I think it offers more diversification than ASX blue-chip shares, which are mainly focused on ASX bank shares and ASX mining shares.
The biggest positions include Shell, Astrazeneca, HSBC, Unilever, BP, GSK, Relx, Diageo, Rio Tinto and Glencore.
The F100 ETF's portfolio has been a solid performer – in the three years to February 2024 it has delivered an average return per annum of almost 12%.
At the end of February 2024, the ASX ETF had a 12-month distribution yield of 3.3%. That's a solid starting point for a second income, in my opinion.
It has an annual management fee of 0.45%, which I think is quite reasonable for an international-based portfolio.
VanEck Morningstar Australian Moat Income ETF (ASX: DVDY)
There are plenty of appealing ASX dividend shares beyond the large ASX bank shares and ASX iron ore shares.
The idea of this ASX ETF is that it focuses on quality companies with a high dividend yield, based on its economic moat (or competitive advantages). These businesses have also been judged to have good balance sheets.
There are a total of 25 holdings within this portfolio, with the biggest five currently being Wesfarmers Ltd (ASX: WES), Carsales.com Ltd (ASX: CAR), ARB Corporation Ltd (ASX: ARB), Pinnacle Investment Management Group Ltd (ASX: PNI) and Macquarie Group Ltd (ASX: MQG).
The DVDY ETF has a 12-month distribution yield of 4.5% and the fund has an annual management fee of 0.35%. I believe this portfolio is a strong choice for a potential second income, combined with good diversification.
I like the names in the ASX ETF's portfolio – they are largely equal-weighted, with the biggest position currently being Wesfarmers at 4.69% and the smallest being Woolworths Group Ltd (ASX: WOW) with a weighting of 3.34%.
