Exchange-traded funds (ETFs) can be powerful weapons if you’re seeking a dependable passive income. Creating a diversified portfolio that can protect dividends from temporary shocks is essential. An ETF can help investors achieve this simply and effectively.
Dividends are never guaranteed, even from these types of funds. But their diversified approach — with holdings that can be spread across different sectors, regions, share types, and even asset classes — can greatly reduce this risk.
But which ETFs should you buy to target a long-term passive income? Here are three top ones to consider from iShares.
REITs
Real estate investment trusts (REITs) can be among the most reliable dividend sources out there. One reason is their focus on property shares, which generate a steady stream of rental income that can be distributed.
But these particular stocks have a trick up their sleeves. Unlike other real estate businesses, these firms are obligated to pay at least 90% of annual rental earnings in dividends. That’s in exchange for tax breaks.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Shareholder payouts can be still volatile during economic downturns, however, when tenants might miss rent payments. The iShares MSCI Target UK Real Estate ETF (LSE:UKRE) spreads this risk out. How? It invests in 25 different REITs.
That’s not all. The trusts it holds are spread across a variety of cyclical and non-cyclical industries. The result? It offers a blend of stability and the potential for strong income growth. Its dividend yield today is 6.3%.
Shares, bonds, and cash
The iShares World Equity High Income UCITS ETF (LSE:WINC) doesn’t focus on ultra-reliable property stocks. But it offers stability in other ways, namely by enjoying exposure to dozens of global dividend-paying shares.
This can sometimes deliver even greater resilience. In its own words, the fund’s objective is
To generate income and capital growth with lower volatility than developed market equities.
In total, this ETF has holdings in more than 500 dividend-paying shares. On the downside, it’s not immune to stock market downturns that can see it fall in value. However, its exposure to cash and US government bonds cuts this risk and improves dividend visibility.
The dividend yield here is 9.7%.
Another stock ETF to consider?
The iShares US Equity High Income Active (LSE:INCU) has more regional concentration than global funds. That’s the bad news.
The good news? Its portfolio is still brilliantly diversified to generate a large and reliable passive income. The more than 300 companies it holds span sectors as diverse as information technology, healthcare, banks, and consumer goods. Some of the fund’s capital is also tied up in cash for extra resilience.
Furthermore, though it focuses on US stock market shares, almost all the companies are multinational businesses. The fund may fall if broader appetite for Wall Street shares dips. But this is less likely to hit dividends.
The forward dividend yield with this ETF is 8.5%.
Should you invest £5,000 in Ishares Ill Plc - IShares U.s. Equity High Income Active Ucits ETF right now?
When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.
And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Ishares Ill Plc - IShares U.s. Equity High Income Active Ucits ETF made the list?
Royston Wild does not hold any positions in the companies mentioned.
