Investing for a second income is a tricker task than usual right now. With the global economy facing significant challenges and uncertainties, it’s tough to predict how corporate earnings and investor dividends will hold up in the months and years ahead.
However, investors can lessen the chances of their passive income sinking by investing in a variety of different stocks. This can be achieved easily and cheaply by purchasing one or more dividend-paying exchange-traded funds (ETFs).
Some such funds are geared specicially towards paying high dividends. They can also hold companies that have strong records of dividend growth. By holding a basket of shares, ETFs can be a better way to target a dependable passive income over time, though it’s important to remember that dividends are never, ever guaranteed.
Should you invest £1,000 in Severn Trent Plc right now?
When investing expert Mark Rogers has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets. And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Severn Trent Plc made the list?
With this in mind, here are two dividend-paying ETFs I think are worth considering today.
A US-focused fund
As the name implies, the iShares US Equity High Income ETF (LSE:INCU) is geared towards generating income from North American assets (218 in total). For this financial year, its dividend yield’s huge, at 10.1%.
Perhaps surprisingly, it comprises a large section of tech stocks (including Nvidia, Microsoft and Apple). Around 28.3% of the fund is devoted to the information technology space.
But this iShares ETF holds classic defensive sectors, too, to give it added steel and exposure to higher dividend yields. Real estate, healthcare and telecoms also feature prominently.
In addition, the fund also generates income from US government-backed securities and cash. The BlackRock ICS US Treasury Fund’s the single largest holding here.
The ETF’s pure focus on US assets could leave it vulnerable if investor confidence in the States begins to dim. But right now, I still believe it offers decent diversification for dividend chasers.
X marks the spot
The Global X SuperDividend ETF (LSE:SDIP) holds 100 of some of the highest-yielding dividend stocks out there. As a consequence, its forward yield’s now 12.9%, which puts it in the top three largest-yielding ETFs.
In total, it has holdings in 105 businesses, which provides reslience even if one or two dividend shares deliver disappointing cash rewards. It’s also well diversified by geography — the US is its largest single territory by share exposure, comprising 30.5% of the fund. And its holdings span multiple sectors including financial services, mining, real estate and utilities.
Major holdings include satellite operator SES, food manufacturer Marfrig and telecom business Proximus.
GlobalX does have high weightings in cyclical industries. For instance, financial services companies and energy producers account for 27.5% and 23.6% of the fund respectively. This carries higher danger during economic downturns than ETFs that are focused on more defensive industries.
Yet the fund’s ability to deliver a large and constant stream of passive income during previous crises helps soothe any concerns I have. Its unbroken record of delivering monthly distributions dates back to 2012.
