ETFs
2 Juicy UK ETFs I’m Looking At For High Passive Income
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Exchange-traded funds (ETFs) are popular tools that investors can use to gain exposure to a basket of stocks, bonds or alternatives, simply by purchasing a listed fund.
It can be used as a passive way to track an index like the FTSE 100or to target a specific sector, like dividend stocks. Here are a few that I’m currently watching for their passive income potential.
Exploiting the real estate market
The first is the iShares MSCI Target UK Real Estate (LSE:UKRE). This fund is essentially a pool of real estate investment trusts (REITs). Normally, I would try to pick my favourite REIT from a selection of them. However, the ETF gives me a rather unique way to get a bit of everything.
It comprises 36 holdings, with some popular names such as Land Security Group And Segre. Yet there are a multitude of others that allow me to gain broader exposure to real estate investments, ranging from commercial sites to private areas.
REITs generate income from renting out premises, which is returned to shareholders. The ETF therefore has a high dividend yield, which currently stands at 6.73%.
Over the past year, ETFs have risen 11%, which is an added bonus on top of the dividend income. Looking ahead, I believe the UK property market is past its most difficult period and demand is likely to be strong in the coming years.
One risk is that interest rates will stay high for longer. Since these real estate companies have debt to finance their real estate purchases, higher interest rates make these transactions more expensive.
The best of Brittany
Another ETF I like is iShares UK Dividend ETF (LSE:IUKD). The fund does what its name suggests, investing in FTSE stocks that pay a dividend. The current dividend yield is 5.56%, with the ETF up 18% over the past year.
It currently has 50 holdings, some of the most important of which are HSBC, Imperial Marks And British American Tobacco. These are large-cap companies that pay generous dividends. Some might ask, why not buy them individually? You can, but it’s a hassle. Plus, the transaction costs of buying 50 stocks are much higher than buying a single ETF.
The story continues
This is a high passive income option as the average dividend yield of the FTSE 100 is 3.59% and FTSE 250 is 3.26%.
The risk is that the ETF includes a stock that I am not comfortable holding. This could be due to ESG criteria, such as not wanting to invest in a tobacco company. Or it could simply be a company that I think will reduce its income payments in the future. With the fund, I can’t exclude it, which could be a risk.
Both funds are on my watchlist to consider buying this month.
The post office 2 Juicy UK ETFs I’m Looking At For High Passive Income first appeared on The Motley Fool UK.
Further reading
HSBC Holdings is an advertising partner of The Ascent, a Motley Fool company. Jon Smith has no position in any of the stocks mentioned. The Motley Fool UK has recommended British American Tobacco Plc, HSBC Holdings, Imperial Brands Plc, Land Securities Group Plc and Segro Plc. The opinions expressed about the companies mentioned in this article are those of the author and may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool, we believe that considering a broad range of ideas helps we are better investors.
Motley Fool UK 2024