One of the most appealing aspects of an exchange-traded fund (ETF) is that it can provide significant diversification with just one buy. However, many of the leading internationally focused ETFs are not known for being high-yield ASX dividend ETFs.
The dividend yields of ETFs are primarily decided by the dividend yields of their underlying holdings.
So, it's not surprising that options like the Vanguard MSCI Index International Shares ETF (ASX: VGS) and iShares S&P 500 ETF (ASX: IVV) have low dividend yields because their biggest holdings, such as Microsoft, Nvidia, Meta Platforms, Alphabet, and Apple, also have low dividend yields.
But what's an investor supposed to do if they want passive income but also want diversification beyond what the Vanguard Australian Shares Index ETF (ASX: VAS) can offer? The ASX share market is weighted towards banks and miners, with those two sectors making up more than half of the S&P/ASX 200 Index (ASX: XJO).
Another high-yield ASX dividend ETF option
I think the Betashares FTSE 100 ETF (ASX: F100) is a compelling option to consider for passive income.
It provides exposure to 100 blue-chip companies that are listed on the London Stock Exchange.
The F100 ETF owns a number of intriguing companies, in my opinion. These include Shell, AstraZeneca, HSBC, Unilever, Relx, BP, GSK, British American Tobacco, the London Stock Exchange, Rio Tinto, Diageo, Glencore, National Grid, Rolls Roye, BAE Systems, Barclays and Reckitt Benckiser.
The portfolio is nicely diversified with five sectors — financials, consumer staples, industrials, healthcare and energy — given a weighting of more than 10%.
Many of these businesses have a decent dividend yield, so collectively, the fund can be considered a high-yield ASX dividend ETF. According to BetaShares, at the end of September 2024, the F100 ETF had a dividend yield of 3.6%. That compares to 1.7% for the VGS ETF.
Not only is the F100's dividend yield appealing, but it has also been outperforming the VAS ETF's overall returns.
According to BetaShares, the F100 returned an average of 9.9% over the three years to September 2024. The VAS ETF has only returned an average of 8.1% per annum over the last three years.
With a forward price/earnings (P/E) ratio of just 11.7x as of 30 September 2024, the F100 ETF still looks appealingly valued to me, particularly given the trending downwards of interest rates in the United Kingdom and internationally.
Of course, investors can bolster their passive income yield by owning individual ASX dividend shares as well.
