Key Points
- Dividends from shares are a source of passive income
- Property is considered as a safe long-term asset class
- Potential safety from diversification can help offset a lower yield
One of my favourite strategies for passive income is to buy dividend-paying shares. However, rather than pick and choose individual stocks, I’ve always been a fan of exchange traded funds (ETFs). These allow me to invest in multiple companies by just holding one share and are usually low cost. There are lots of choices of funds available, but here’s one of my ‘must-have’ passive income ETFs for 2022.
A property ETF
Many investors consider property as one of the safest long-term asset classes. Though I might be wrong, in the turbulent times at present, I think property with its stable income streams and potential for capital appreciation is more important than ever. Although there are various ways to get exposure to property, for my own portfolio a real estate ETF is high on the priority list.
The fund I’ve been looking at is iShares UK Property UCITS ETF GBP DIST (LSE: IUKP). This dividend-paying ETF aims to provide diversified exposure to UK real estate by tracking the FTSE EPRA/Nareit UK Index. The index is designed to track the performance of property companies and real estate investment trusts (REITs) listed on the London Stock Exchange.
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It’s a decent size, with over £600m in assets, has a relatively low ongoing charge, and has been going since 2007.
The ETF is also well-diversified, holding the 40 firms listed in the index. These operate in a wide variety of sectors including industrial, residential, and healthcare property.
Out of the 40 companies, the largest holding is Segro at just over 20%. This specialises in out-of-town business space and is one of the biggest industrial property companies in Europe. Real estate giants such as Land Securities Group and British Land are also in the fund, as is the largest UK operator of purpose-built student housing, The Unite Group.
A dividend-yield I can work with
One of the main drawbacks to iShares UK Property UCITS ETF GBP DIST is the relatively low dividend of 1.96%. I know that if I carefully pick and choose some companies in the FTSE 100 I might be able to get a better yield, however, for my own portfolio, this passive income is good enough.
This is because the fund is so well diversified. It means that if any individual company or sector has a weak period, it should not mean the game over for the entire ETF. In essence, I’m giving up the chance of a higher return for owning multiple companies through a single share.
In truth, this fund is unlikely to make me rich. However, it promises to give me long-term returns from what I hope is a stable asset class. For that reason, it’s a ‘must-have’ passive income pick for my own portfolio for 2022.
