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Highlights
- ETFs provide an easy way to access diversified dividend income.
- Three ETFs focusing on blue-chip stocks, property, and bonds.
- Potential for long-term passive income with varying risk levels.
Exchange-traded funds (ETFs) have become a popular choice for investors seeking passive income, particularly those nearing retirement. These funds offer diversification and ease of investment while potentially delivering consistent dividend payouts. Here are three ASX-listed ETFs that may align with income-focused strategies.
Betashares Australian Top 20 Equity Yield Maximiser Fund (ASX:YMAX)
This ETF comprises the 20 largest blue-chip companies listed on the ASX, including well-known names like (ASX:CBA) and (ASX:BHP). However, it takes an extra step to enhance its income potential by using an options strategy.
The fund writes call options on up to 100% of its portfolio holdings, typically at strike prices 3-7% above current share prices. Buyers of these options pay premiums, which the fund collects as additional income, boosting its yield. As a result, YMAX has maintained a trailing yield of around 7.5%.
While this strategy enhances income, it comes with inherent risks. In a rising market, the fund may miss out on share price gains if options buyers exercise their contracts. Additionally, YMAX has a relatively high management fee of 0.76% per year due to its active strategy. Investors seeking a straightforward approach may find the next two ETFs more suitable.
Vanguard Australian Property Securities Index ETF (ASX:VAP)
For those interested in property-backed income, (ASX:VAP) provides exposure to Australian real estate investment trusts (REITs). This ETF mirrors the performance of the S&P/ASX 300 A-REIT Index and includes holdings in major property groups like (ASX:GMG), (ASX:SCG), and (ASX:CHC).
These REITs generate income by owning and managing real estate assets, from industrial sites to shopping centers. With a long-term return history of over 8% per annum and a current yield of about 4.4%, this ETF offers a stable income stream. It also has a relatively low management fee of 0.27% per year, making it a cost-effective option.
iShares Yield Plus ETF (ASX:IYLD)
Investors looking for a more traditional income strategy may find (IYLD) appealing. This ETF holds a diversified portfolio of Australian investment-grade corporate bonds, with credit ratings ranging from BBB to AAA.
The fund primarily consists of A-rated bonds and maintains short-to-medium-term maturities of 1-5 years. With over 190 holdings, (IYLD) offers broad diversification and stability. It also boasts a low management fee of just 0.12% per year, making it an efficient choice for fixed-income exposure.
Final Thoughts
Each of these ETFs caters to different income-focused strategies. Whether it's high-yield blue-chip stocks, real estate-backed dividends, or bond-based stability, these ETFs offer potential avenues for investors seeking passive income. Understanding the risks and returns associated with each can help investors make informed decisions suited to their financial goals.
