DIVIDENDS AND TAX
High dividend etfs?
Hi everyone I’m curious for some opinions from the community about high dividend yield etfs? Anyone have any thoughts/suggestions? Kind regards Nunz
4 Comments
over 1 year ago
Hey Nunz.
There are quite a few of these around these days, and I’ve invested in one myself a while back. After a while, I decided it made more sense for me to not continue down this path and go with other ETFs instead (simple index funds). Here’s why…
- High dividend ETFs come with higher management fees.
- They come with a much smaller number of stocks in the portfolio (far less diversified than a typical index fund like VAS for example).
- They are also more concentrated in terms of sectors because of the above.
- Aussie shares already provide a very healthy level of income.
- Performance is often less than the index given the smaller portfolio of stocks. So in addition to the above, there is sometimes a performance drag too.
After thinking about the trade-offs a bit more, I decided against the high yield ETF route. Even though I do like receiving a good level of dividend income from my investments that is. Having said that there are probably one or two that are decent options, though I wouldn’t make it a big part of a portfolio given the reduced diversification. Others may see it differently.
Hope that helps, and all the best.
Dave
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Replyover 1 year ago
No worries mate, happy if any of it is helpful.
A reasonably diversified portfolio can be setup (index funds for example), which still spits out a healthy income stream each year. The only thing that’s required by the investor is some personal flexibility / cash buffer, since even though dividends typically get larger over time, they aren’t the same each year. This is actually my personal approach and I’m a huge fan of using dividends to live off.
As for term deposits, they may pay attractive income at the moment, somewhere similar to a share portfolio (4%), but the income won’t grow, there’s no capital growth, and rates can easily come back down from here. In fact, some astute people I follow as expecting rates to start falling in the next year or so.
Also worth keeping in mind that it may not be the best option as a ‘defensive’ part of the portfolio. Because a term deposit is locked in, it means you can’t usually access any of the money to top up your income in case of a drop in dividends or take some instead of selling some shares. It will however serve its purpose if you wanted it to reduce the volatility of your overall net worth. So depends what you were wanting it for.
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