When it comes to securing an extra $10,000 a year in passive income, ASX ETFs, or exchange traded funds, are an excellent option for many Aussie income investors.
Rather than having to research and buy a dozen or more dividend paying stocks, you can get that diversity, and more, from an ETF with a single investment.
I mention buying a dozen or more dividend stocks because you don't want to simply buy one or two high yielding companies. While that may work out in the shorter-term, even quality companies with a good track record of annual dividend payouts can run into headwinds that could slash the passive income you were expecting to bank.
While ASX ETFs don't remove all of that risk, they do work to help smooth your returns over time.
With that said…
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Two top passive income ASX ETFs to buy today
The first fund I'd buy is the BetaShares Australian Dividend Harvester Fund (ASX: HVST).
One of the appealing things for passive income investors is that this ASX ETF gives investors instant diversity through its portfolio of 40 to 60 high-yielding, blue-chip ASX shares. The fund's management team screens these for high dividend and franking outcomes based upon expected future gross dividend payments.
As of 31 July, the ASX ETF's top three holdings are Commonwealth Bank of Australia (ASX: CBA) BHP Group Ltd (ASX: BHP) and Wesfarmers Ltd (ASX: WES).
And HVST pays out dividends on a monthly basis, so your next passive income payout is never too far away.
Because the ETF's holdings are actively managed and rebalanced every three months to target higher yielding ASX dividend stocks, the annual management fee is 0.72%.
As at 31 July the HVST had 12-month trailing yield of 5.6%, 63% franked. Those franking credits bring the grossed-up yield to 7.1%.
Which brings us to the second ASX ETF I'd buy to target $10,000 a year in passive income, the iShares S&P/ASX Dividend Opp ESG Screened ETF (ASX: IHD).
IHD provides exposure to 50 of the highest-yielding shares on the S&P/ASX 300 Index (ASX: XKO). The fund will appeal to ESG investors, with management screening stock selection to avoid companies engaged in serious ESG controversies.
As at 31 July, IHD's top three holdings are BHP Group Ltd (ASX: BHP), Rio Tinto Ltd (ASX: RIO), and Australia and New Zealand Banking Group Ltd (ASX: ANZ).
IHD trades on a 4.1% trailing dividend yield, franked at around 76%. That equates to a 5.5% grossed-up yield.
How much do I need to invest today?
Working with the grossed-up trailing dividend yields here – and taking note that future yields could be higher or lower – just how much would you need to invest in these two ASX ETFs for $10,000 a year in passive income?
Well, assuming you invest the same amount in each fund, then you'll receive an average grossed-up yield of 6.3%.
So, for $10,000 a year in passive income, you'd need to invest $158,730 today.
You can also invest a smaller amount on a monthly basis, and you'll reach your income goal in good time.
