You won't often hear the word 'safe' here at The Motley Fool. No ASX share, or share-based exchange-traded fund (ETF) for that matter, can be considered completely safe, speaking from a capital preservation standpoint.
Markets can price businesses however they like. This pricing is fickle, though, and can change for no good reason. No one knows what kind of profits a business is going to bring in next month, next year or five years from now. And that makes pricing companies accurately extremely difficult.
As such, no business, whether it be Commonwealth Bank of Australia (ASX: CBA) or Ampol Ltd (ASX: ALD), can be relied upon to preserve your hard-earned dollars if you buy its shares. Nor can they be relied upon completely for dividend income. A company can only pay out dividends from the pool of profits that it amasses. Given that this pool of profits is impossible to anticipate with certainty, so too are any potential dividends derived from it.
Income-focused ASX ETFs that fund income from ASX shares, such as the Vanguard Australian Shares High Yield ETF (ASX: VHY), fall into the same bucket.
But there is one ASX ETF that investors can buy today that can promise capital preservation, as well as a truly reliable income stream. What's better, this ASX ETF is currently yielding about 4%, and could rise even further.
That ASX ETF is the BetaShares Australian High Interest Cash ETF (ASX: AAA).
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A safe ASX ETF with a 4% yield?
AAA can promise capital preservation and income stability because it does not actually invest in ASX shares. Instead, it holds investors' capital in cash deposits in Australian banks. The fund then uses the interest it receives from these investments to pay income distributions to investors.
Historically, cash investments have not delivered nearly the same levels of returns that ASX shares have. However, I think the rather unique situation currently facing investors makes cash appealing right now. Despite the volatility we have seen on the share market over the last few months, the ASX remains fairly close to its record highs.
Dividend yields on the ASX's most popular shares remain depressed as a result. Popular income stocks like Telstra Group Ltd (ASX: TLS), Commonwealth Bank of Australia (ASX: CBA) and Wesfarmers Ltd (ASX: WES), to illustrate, currently trade on dividend yields well under 4%.
In contrast, this ETF's last monthly distribution (yes, it pays out monthly) came in at 17.2 cents per unit. Annualised, that would give AAA a distribution yield of 4.12%. The only factor that can really affect this ETF's yield is interest rates. And with rates rising in May, and possibly again before the end of the year, this looks like a pretty compelling option for anyone investing for income today.
