In my experience, most dividend investors that buy shares for income aren't heavy in exchange traded funds (ETFs). ETFs are a relatively new concept on the ASX, so perhaps haven't made their way onto some older dividend investors or retirees' horizons. Or perhaps income investors are just more traditionalist. But I think there is a place for ETFs in every dividend investors portfolio, and I'll explain why using these 2 ASX ETFs.
iShares S&P/ASX Dividend Opportunities ETF (ASX: IHD)
This ETF from BlackRock tracks an index comprised of 51 of the highest-yielding shares on the ASX. Why bother trying to sift through the big banks and resource companies looking for yield when you can just get one ETF that owns all of the best dividend payers the ASX has to offer?
What I like most about this fund is the automatic rebalancing nature of its operations. If a stock ceases to pay a dividend (take AMP Limited (ASX: AMP) for instance), it is automatically removed from the ETF without you having to do anything and replaced with a stock that does. Thus, there is little chance of you getting caught in a dividend trap. IHD charges a management fee of 0.4% and offers a trailing yield of 6.23%
SPDR S&P Global Dividend Fund (ASX: WDIV)
WDIV takes a similar strategy to IHD and applies it to companies around the world – thus you can get a slice of 99 global companies that all have a history of stable or increasing high dividends for 10 years or more, all in one ASX share. Although (as it invests in companies outside Australia) you don't get any franking credits with this ETF, it still offers a 4.8% yield on current prices, as well as valuable global exposure. The ASX only accounts for around 2% of the world's shares, so if you love income, it might pay to look outside our shores as well.
Some of WDIV's top holdings include Exxon Mobil, Japan Tobacco, AT&T and General Mills. This ETF charges a management fee of 0.5%.
Foolish takeaway
I think these 2 ETFs would have a very solid place within any dividend-focused ASX portfolio. You get instant diversification as well as automatic mechanisms that exclude underperforming companies. You could use either or both of these ETFs to build a strong foundation of income-producing assets, topped up with your favourite ASX dividend shares.
