One of the primary aims of my investment strategy is to boost my passive income stream through dividend-paying stocks. One exchange-traded fund (ETF) that caught my eye recently is iShares UK Dividend ETF (LSE:IUKD). Should I buy or avoid the shares?
Dividend seeker
As a reminder, an ETF is a type of pooled investment security, and it can be traded on the stock exchange like a normal stock. It tracks a particular index, sector, commodity, or other assets.
The iShares UK Dividend ETF tracks the FTSE UK Dividend+ Index. It holds the top 50 yielding dividend stocks from the FTSE 350, excluding investment trusts. Using specific criteria, it works out which companies to include. One of the primary criteria for iShares is the dividend performance of a company.
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As the iShares UK Dividend ETF trades like a normal stock, it has a share price too. Currently, the shares are trading for 628p. At this time last year, the ETF was trading for 717p, which is a 12% drop over a 12-month period.
To buy or not to buy
So let’s take a look at some pros and cons of me buying the iShares UK Dividend ETF shares for my holdings.
FOR: the ETF is managed by Blackrock, which is one of the largest asset managers in the world. It has a reputation for operating with higher liquidity than other asset managers, which I like. In addition to this, I am buoyed by the fact that the ETF has good diversification. Of the 50 companies making up the fund, there are lots of different types of companies that operate in different sectors. This can offer protection against headwinds and volatility, like now.
AGAINST: As with any passive income stock, it is always worth remembering that dividends are never guaranteed. They can be cancelled at any time to help conserve cash. This usually happens during times of volatility, or an unexpected event like a pandemic.
FOR: the ETF’s current dividend yield is extremely enticing. It stands at 7.2%. This is considerably higher than the FTSE 100 average of 3%-4%.
AGAINST: A few other risks to consider are lack of geographical diversification, as well as a heavy exposure to financial stocks. All the stocks in the fund are businesses based in the UK. This means a lot of them are at the mercy of the UK economy, which is experiencing lots of issues such as soaring inflation. As for financial stocks, due to recent headwinds, many of them have suffered. This could hurt the ETF’s level of return moving forward but this is something I will keep an eye on.
A passive income stock I would buy
To summarise, there are clear benefits, and some pitfalls, to buying the iShares UK Dividend ETF for my holdings. Current economic issues will impact it in some form, in my opinion. Despite this, I like the look of this ETF to boost my passive income. Its generally diverse portfolio, as well as the dividend yield on offer are big positives for me. I would add the iShares UK Dividend ETF to my holdings.
