Top High Yield ETFs of AXS in 2023 (10 ETFs to Invest in AXS)
As interest rates rise and inflation skyrockets, having a high dividend ETF that can generate extra income is always a good idea. In this article, we will compare several high-yield ETFs that provide exposure to the Australian stock market, as well as global high-yield ETFs that consist of companies generating attractive and sustainable income. We will compare their performance to determine which ETF provides the highest income return without compromising price return.
Australian Domestic High Dividend ETFs
High dividend ETFs, like dividend stocks, can sometimes fall into dividend traps. It is important to understand the differences between these ETFs. For example, VHY focuses on forecast dividend yields, making it more immune to dividend traps compared to IHG and SYI, which use past dividend history to filter out dividend stocks. RDV adopts a hybrid approach, using both historical and forecast metrics when constructing the fund.
When it comes to sector allocation, the top three sectors for high dividend stocks in Australia are financials, materials, and energy. The five ETFs we are comparing generally follow this pattern, although RARI includes real estate and healthcare companies due to its index methodology. DVDY, which tracks a special index, has different top three sectors compared to the other ETFs.
These ETFs have different distribution frequencies, with six of them distributing dividends quarterly and RARI doing so every six months. The management fees also vary, with IHD and VHY being on the cheaper end and SYI, RDV, ZYAU, and DVDY being slightly more expensive. RARI has the highest fees.
Comparison of Returns
To compare the returns of these ETFs, I invested $1,000 in each fund on their inception dates. VHY came out as the winner with the highest dividend return and a decent price return, resulting in a total return of 12.24% per year. On the other end of the spectrum, IHD, ZYAU, and RARI had negative price returns, dragging down their total returns to around 4-5%.
Comparison with Broad Market Index ETF
To assess whether VHY is worth investing in for the yield, we can compare it with the broad market index ETF VAS, which mimics the Australian large cap stock market. VAS provides better capital growth, but its dividend income return is not bad at all. The total return of VAS only outperformed VHY by 1.45%. Investing in VHY would result in more dividends along the way, but there would be an opportunity cost of $145 for every $10,000 invested in VAS.
When purchasing dividend stocks, you receive franking credits attached to the dividends. These credits reflect the fact that a 30% tax has already been paid on the net income of the company. If your personal tax rate is less than 30%, you can receive any excess franking credits as a refund. The franking levels of SYI, RDV, VHY, and VAS are all about 85%.
High Yield ETFs with Global Exposure
Now let’s move on to the three high-yield ETFs that capture some global companies. Combining one of these with one of the Australian high-yield ETFs will provide instant market diversification. WDIV currently includes two Australian companies, JB Hi-Fi and APA Group, which account for about 2.3% of the total value of the ETF.
When it comes to geographic coverage, WDIV covers not only North America and Europe but also many Asian companies in China, Singapore, Taiwan, and South Korea. INCM, on the other hand, has over 60% in US companies and a small percentage in South Korean companies. ZYUS is dominated by US companies, with a small percentage in Irish and British companies.
The three ETFs have different distribution frequencies, with WDIV and INCM paying dividends quarterly and WDIV doing so semiannually. WDIV also has the highest management fees among the three.
Comparison of Returns
I invested $1,000 in each of these ETFs on their inception dates. Despite being the most expensive, WDIV provided the highest total return, with slightly lower income returns compared to WHY US. ZYUS had a negative price return, which could indicate some stocks falling into the dividend trap.
Zero capital growth in income. The income return is about 3.77. Let’s compare with a popular global broad market ETF, VGS. The number clearly shows that VGS has much more capital growth capacity and therefore a higher total return.
- If you’re invested in WWE IV, you would get more dividends to be collected along the way.
- But every ten thousand dollars, you would have $845 opportunity cost if the money was otherwise invested in VGS.
- Factoring in compounding effects for 10 years, the total profit you will miss is $6,728.
I hope this kind of product review can provide you with some information you were looking for. Please don’t use them as investment advice and do your own research because the performance data are dynamic and past returns are not a guarantee of future performance. I can do yearly reviews if you like this kind of content or if you want me to review or compare any investment products.