Which ETFs have had the most consistent dividends?

Question

Which ETFs have had most consistent dividends?

Answer

The dividends on your ETF investments are driven by the dividends of the underlying shares the ETF is invested into. So a good place to start for your research is around which shares pay the most consistent dividends.

Generally speaking, Australian shares will payout higher levels of dividends than US companies (in particular tech stocks) where there’s a heavy focus on growth. Also if you look at history, Australian shares pay fairly consistent dividends – partly because they know that we have a lot of self funded retirees that have created a reliance on these dividends.

Worth noting that dividend payments are impacted by what’s going on with the economy and the companies, for example in the middle of COVID we saw some dividends cut or held back, and in the 2008 financial crisis this was much more widespread.

Hope it helps.

Answer

Hi Nat!

Great question! I can only offer general information, not personal advice.

For me, there are two broad rules of thumb:

1) Whatever the ETF is invested in (e.g. shares, bonds, etc.) should produce income (e.g. dividends, bond coupons, etc.). For example, I wouldn’t invest in a gold ETF for income, as gold doesn’t ‘produce cash’.

2) The ETF should be well diversified. For an Aussie shares ETF, that might be an even balance across maybe 40+ individual shares. For US or global shares, it might be finding an ETF with 100+ individual holdings.

If you think about those two basic rules, it’s pretty easy to knock ideas in or out. For example, only, Vanguard’s VAS or Betashares A200 or SPDR STW (all Aussie shares) have ~200 – ~300 shares. MOAT is a US shares ETF that holds 40+ shares, so I wouldn’t consider this one as good for income only. Note: Aussie shares ETFs can also pay franking credits to long-term Aussie investors.

I hope this basic rule of thumb helps. It doesn’t mean an investor shouldn’t own a concentrated ETF (e.g. one that owns 10-30 positions or gold ETFs) it’s simply that they should play a different role. Kind of like how your Centre in Netball is usually short but your Goal Shooter is tall!

Cheers!

Owen Rask

Diclosure: I own units in A200. Disclaimer: this reponse contains general financial information only.

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