It's fair to say that Australian and global equities look expensive right now.
The S&P/ASX 200 Index (ASX: XJO) and the S&P 500 Index (SP: .INX) are trading close to all-time highs.
This can make it feel difficult to identify individual stocks that are undervalued.
When that's the case, it can be a good opportunity to turn to income investing.
Dividend or income investing focuses on owning assets that pay regular cash (like dividends). This means your returns don't rely entirely on rising share prices.
When equities look expensive, this strategy is attractive because income provides a steady return and downside cushion. This allows you to stay invested and get paid while waiting for better valuation-driven opportunities.
Here are 3 ASX ETFs income focussed investors might consider.
Image source: Getty Images
Global X S&P/ASX 200 High Dividend ETF (ASX: ZYAU)
This ASX ETF invests in 50 high-dividend stocks from the S&P/ASX 200 Index.
This fund is designed to focus on forward-looking positive dividend yields while ensuring it does not deviate too much from the benchmark in terms of sector weights.
To achieve this, Global X applies a momentum filter. The filter removes stocks experiencing sharp price falls, helping to reduce the risk of being exposed to dividend traps.
According to a recent report from Global X, the fund is a purely income-focused strategy with limited capital gain upside, making it well-suited to sideways or falling markets while helping investors supplement portfolio returns in a challenging environment.
The ASX ETF provider said it currently has a trailing annual distribution income of ~10% p.a., made up of dividends, franking credits, and options premium yield, and is currently the only index-based Australian share covered call ETF on the market.
Betashares S&P Australian Shares High Yield Etf (ASX: HYLD)
This fund aims to track the performance of an index (before fees and expenses) that provides exposure to a share portfolio of 50 high-yielding Australian companies.
It currently offers a dividend yield of approximately 4.5%.
According to Betashares, it seeks to improve on traditional high-dividend strategies by aiming to screen out potential 'dividend traps' such as companies projected to pay unsustainably high dividend yields, as well as companies that exhibit high levels of volatility relative to their forecast dividend payout.
It includes a similar portfolio to the Global X fund above, with an exposure to some of Australia's largest banking and mining companies.
Russell Investments High Dividend Australian Shares ETF (ASX: RDV)
Another strong income ETF to consider is the Russell High Dividend Australian Shares ETF.
This fund aims to track the Russell Australia High Dividend Index, which comprises Australian blue-chip companies with a bias towards those that have a high expected dividend yield.
It combines this with companies that meet other characteristics including:
- a history of paying dividends
- dividend growth
- consistent earnings.
It has a yield of just over 4.5%.
