I’m constantly on the hunt for passive income, and long-term dividend streams are always near the top of my list. There are some fantastic high-paying dividend companies in the FTSE 100, but I have always been a fan of ETFs (exchange traded funds).
ETFs are funds that track an index or sector and can be bought and sold like a share through most online brokers. The beauty is that they allow me to invest in multiple companies in a single fund and are usually low cost.
Recently I have spotted an ETF that looks like it could be very interesting in terms of its potential to pay dividends to me in 2022 and beyond.
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What’s in my crosshair?
SPDR S&P Global Dividend Aristocrats UCITS ETF (LSE: GBDV) is the one I have been looking at. Its aim is to invest in global high-dividend-yielding companies by tracking the S&P Global Dividend Aristocrats Quality Income Index. There is a lot to like about this index. It aims to track global companies that are over $1bn in market capitalisation and that have maintained or increased dividends for at least 10 consecutive years whilst at the same time having a positive return on equity and cash flows from operations.
Looking at the ETF itself, it’s a decent size at over $700m and is relatively low cost. For me, diversification is one of the most important ways to reduce risk and this ETF ticks all the boxes across companies, countries and sectors.
Firstly, there are around 100 companies in this fund, with no company having more than 3% weighting within the fund. Names you might recognise include Exxon Mobil Corp and GlaxoSmithKline. Secondly, the fund is geographically diverse. 45% is invested in US companies, around 8% is invested in both the UK and Japan whilst other holdings come from all across the world. Finally, I get comfort from knowing that sectors as diverse as banking, utilities and insurance are covered.
The dividend yield is currently around 3.7%. Some investors might not be that impressed and it’s true that I can find some companies within the FTSE 100 paying monster dividends at the moment, but I am looking for sustainable, long-term dividend streams.
Of course, no investment is guaranteed, but with this fund holding only those companies that have sustained or increased dividends over 10 years, I feel that this might be a safer bet over the long term.
Also, an ideal passive income stream is meant to be low maintenance. As the index this ETF tracks rebalances over 2022 and the following years, the companies within this ETF will automatically change. I can’t ask for more hands-off than that.
Am I going to pull the trigger?
It certainly is very tempting; however, I think there is more for me to consider, in particular, total return.
The total return on a share investment needs to consider both the dividend yield and share price growth. As we move into 2022, I am not convinced that focussing only on dividend yield is the right strategy for me.
The share price of this ETF has barely increased by 3% over five years, and looking to next year and beyond I feel that the technology sector as a whole might be the place to look for the best total return. The dividends might not be as good, but I think that the share price appreciation in certain technology companies will more than make up for it.
