With the mining and bank shares paying lower dividends than usual, can ASX exchange-traded funds (ETFs) fill the void for income investors?
Let's take a look at two relatively young ASX ETFs that are not only designed to maximise income, they also pay dividends monthly.
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2 ASX ETFs designed to maximise income
Betashares S&P Australian Shares High Yield ETF (ASX: HYLD)
This one is a brand newie to the market.
Betashares launched the HYLD ETF in August and has $42 million in net assets.
HYLD ETF seeks to track the performance of the S&P/ASX 200 High Yield Select Index before fees.
The index is comprised of 50 ASX companies.
HYLD ETF's top holdings are Westpac Banking Corp (ASX: WBC) shares 11%, National Australia Bank Ltd (ASX: NAB) 11%, ANZ Group Holdings Ltd (ASX: ANZ) 10%, BHP Group Ltd (ASX: BHP) 10%, Wesfarmers Ltd (ASX: WES) 5%, Macquarie Group Ltd (ASX: MQG) 5%, and Telstra Group Ltd (ASX: TLS) 4%.
Betashares says HYLD ETF is different because it screens out potential 'dividend traps'.
A dividend trap is a share with an unusually high dividend yield that is not sustainable. This typically happens after a big share price fall.
Currently, the HYLD ETF has a trailing 12-month dividend yield of 4.46%.
In terms of total returns, HLYD ETF is new, so there are no long term performance metrics to review.
(But for the record, it has delivered 6.74% total returns since its inception date on 1 August.)
However, the index that HYLD tracks has been around for 14 years — and has an appealing record.
Over the past five years, the S&P/ASX 200 High Yield Select Index has produced an average annual total return of 16.17%.
Over the past 10 years, it delivered an average of 10.1%.
The HYLD ETF's management fee is 0.25% per year.
Betashares Australian Dividend Harvester Active ETF (ASX: HVST)
HVST is one of the very few ASX ETFs that pays monthly dividends.
It's only been trading for three years, and currently has $273 million in net assets.
Betashares says HVST is designed for investors who need cash flow, like self-managed superannuation funds (SMSFs) and retirees.
The aim is to exceed the net annual income yield of the broader Australian market through a diversified portfolio.
The HVST ETF is an active ETF, so it doesn't follow an index.
Instead, the stock pickers at Betashares manage the ETF's investments.
Generally, the managers use a screening process to select stocks from the largest 100 companies that are expected to provide high dividends and franking credits. They rebalance the portfolio every quarter.
HVST ETF's top holdings are currently Commonwealth Bank of Australia (ASX: CBA) 15%, CSL Ltd (ASX: CSL) 6%, BHP 5%, Wesfarmers 3.5%, Transurban Group (ASX: TCL) 3%, Woodside Energy Group Ltd (ASX: WDS) 3%, and Telstra 3%.
Since inception in June 2022, HVST ETF has delivered an average annual gross total return of 11.34% and a net return of 9.02%.
The 12-month gross distribution yield is 7.2% and the net yield is 5.6%. The franking level is 67.8%.
The annual management fee is 0.65% plus 0.07% in estimated expenses.
