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Choosing shares to buy for a passive income can be a frustrating experience. Even the most dependable of dividend stocks can cut, postpone, or cancel cash rewards when crises emerge.
Investing in an exchange-traded fund (ETF) can greatly reduce the impact of such eventualities on an individual’s overall returns. By holding a wide variety of dividend-paying shares, these funds spread risk and can offer a more consistent dividend even if some companies held in the fund falter.
With this in mind, here are three great dividend-focused ETFs to consider today. As you can see, their forward dividend yields beat the FTSE 100 average of 3.7% by a comfortable margin.
Continental colossus
The WisdomTree Europe Equity Income UCITS ETF (LSE:EEI) holds shares in 255 businesses in the UK and on Mainland Europe. For this financial year its dividend yield is a meaty 6.6%.
This high yield can be explained partly by the large proportion (around 21% of the total fund) of British shares that it holds. Largely speaking, companies on these shores have a stronger culture of paying large and growing dividends than their continental counterparts.
Less than a third of its capital is tied up in its 10 largest holdings (which include banking giant HSBC, utilities operator Enel, and energy producer TotalEnergies), and its exposure extends across a wide variety of sectors.
Returns may disappoint in the event of a eurozone-wide slowdown. But on balance, I think it’s a well diversified ETF to consider.
Dividend angel
The Invesco US High Yield Fallen Angels ETF (LSE:FAHY) doesn’t invest in equities. Instead, it focuses on corporate bonds that are below investment-grade status.
More specifically, it’s designed to track “the performance of ‘fallen angels’ — bonds which were previously rated investment-grade, but were subsequently downgraded to high-yield“.
Some 97.5% of its portfolio is dedicated to instruments with an investment rating of BB or below. This creates greater danger for investors, but it also results in a sky-high dividend yield. The forward dividend yield here is a robust 7%.
Some of the ETF’s largest holdings include bonds from healthcare provider CVS Health, aluminium producer Alcoa, and chemicals manufacturer OCI Global. In total, its portfolio comprises 74 different holdings, providing investor returns with protection against one or two possible defaults.
World beater
As its name implies, the iShares World Equity High Income UCITS ETF (LSE:WINC) is loaded with yield-rich companies from across the globe. Consequently, its forward dividend yield is an enormous 9.1%, putting it in the top seven highest-yielding ETFs currently available in the UK.
In total, the product holds shares in 328 different businesses from across the globe. This broad geographic footprint can help it absorb localised problems better than funds that are focused on certain regions.
What’s more, this iShares ETF holds non-equity assets like US government-backed securities and cash. It’s a strategy that provides even greater stability over time.
It’s also worth noting the fund’s high exposure to technology shares like Microsoft, Nvidia, and Meta. While such shares can be more volatile across the economic cycle, they also have significant growth potential.
