Can I simplify my passive income for 2022 with this dividend-paying ETF?

I’m looking at whether this exchange traded fund could be the simplest way for me to earn passive income without having to think about stock-picking in 2022.

| More on:

The content of this article was relevant at the time of publishing. Circumstances change continuously and caution should therefore be exercised when relying upon any content contained within this article.

Various denominations of notes in a pile

Image source: Getty Images.

Passive income is regular income from an asset, like a stock, that requires little effort or maintenance. I’m constantly on the hunt for hands-off returns and in  2022, I’m once again looking at long-term dividend streams.

There are some fantastic high-paying dividend stocks in the FTSE 100. However, I’m a fan of exchange traded funds (ETFs).

Inflation Is Coming

Inflation is out of control, and people are running scared. But right now there’s one thing we believe Investors should avoid doing at all costs… and that’s doing nothing. That’s why we’ve put together a special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation… and better still, we’re giving it away completely FREE today!

Click here to claim your copy now!

ETFs are funds that track an index or sector and can be bought and sold like shares through most online brokers. They allow me to invest in multiple companies in a single fund and are usually low-cost. 

My pick

The one I’ve been exploring is SPDR S&P UK Dividend Aristocrats ETF (LSE:UKDV). As the name suggests, this fund tracks the S&P UK High Yield Dividend Aristocrats Index.

This index follows the 40 highest-dividend-yielding UK companies that have either increased or maintained their dividends for at least seven consecutive years. It also focuses on large firms as new entrants to the index must have a market cap of at least $1bn. The businesses also have to meet the index’s liquidity requirements.

One of the main reasons I like ETFs is the diversification they provide. This fund consists of 40 companies across several industry sectors. I believe that having a large number of companies within it provides a high degree of resilience. If any individual firm falters, because the weighting of every company is limited to a maximum of 5%, the overall downside to the ETF is limited. 

Companies in this fund are mostly large blue-chip entities across a variety of sectors such as insurance, mining and pharmaceuticals. Household names include the likes of Legal & General, Rio Tinto and GlaxoSmithKline.

The ongoing charge is a very reasonable 0.3% and in terms of passive income, the current dividend yield is 3.59%, payable biannually.

OK, that’s not a huge yield. I can find some companies within the FTSE 100 paying much bigger dividends at the moment. For example, Evraz, the steel-making and mining company, has a current dividend yield of over 11%. However, for my portfolio, I find holding an ETF a simpler and stress-free approach rather than picking individual shares.

Long-term income

No investment is guaranteed, but I’m looking for a simple, long-term income stream. I think buying and holding this fund might be easier for me over the long run than hunting for individual dividend-paying shares. This ETF rebalances each year as the index updates. This means that companies move in and out of the fund automatically, without any input from me. 

This ETF is by no means perfect. Some of these dividend-paying companies will be successful firms that have strong free cash flows. However, some will feel they have to maintain high yields to keep their investors happy even though the business is not growing. In the long run, not only will the dividends be unsustainable, but the firms could even fail.

Despite this, on balance, I’m happy to consider this dividend-paying ETF as a low maintenance, diversified, passive income stream for my portfolio.

Is this little-known company the next ‘Monster’ IPO?

Right now, this ‘screaming BUY’ stock is trading at a steep discount from its IPO price, but it looks like the sky is the limit in the years ahead.

Because this North American company is the clear leader in its field which is estimated to be worth US$261 BILLION by 2025.

The Motley Fool UK analyst team has just published a comprehensive report that shows you exactly why we believe it has so much upside potential.

But I warn you, you’ll need to act quickly, given how fast this ‘Monster IPO’ is already moving.

Click here to see how you can get a copy of this report for yourself today

Niki Jerath has no position in any of the shares mentioned. The Motley Fool UK has recommended GlaxoSmithKline. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Should you invest the value of your investment may rise or fall and your Capital is at Risk. Before investing your individual circumstances should be considered, so you should consider taking independent financial advice.

More on Investing Articles

Woman looking at a jar of pennies
Investing Articles

I think the JD Sports share price is a bargain. Here’s why

Our writer explains why the JD Sports share price has led him to buy more for his portfolio.

Read more »

Portrait of elderly man wearing white denim shirt and glasses looking up with hand on chin. Thoughtful senior entrepreneur, studio shot against grey background.
Investing Articles

Is this tech stock one of the best shares to buy now?

Jabran Khan is on the hunt for the best shares to buy now for his holdings and takes a closer…

Read more »

Business development to success and FTSE 100 250 350 growth concept.
Investing Articles

3 top FTSE 250 shares to buy right now

I think the FTSE 250 is offering some great dividend and growth shares at the moment. And there are plenty…

Read more »

Happy retired couple on a yacht
Investing Articles

This growth stock has seen its shares pull back! Should I buy now?

When a growth stock sees its share price drop, I look carefully to see if I could pick up a…

Read more »

Passive income text with pin graph chart on business table
Investing Articles

How to identify the best income shares like this one

Income shares vary in quality but this approach keeps me from making some of the worst howlers with dividend investing.

Read more »

Mindful young woman breathing out with closed eyes, calming down in stressful situation, working on computer in modern kitchen.
Investing Articles

If I’d invested £1k in Tesla shares a year ago, here’s how much I’d have now

If Jon Smith had bought Tesla shares a year ago, he'd be in profit. But he has some concerns for…

Read more »

Twenty pound notes in back pocket of jeans
Investing Articles

Should I buy tobacco shares now for big dividends?

After a possible setback for electronic cigarettes, our writer explains why he would still buy tobacco shares for his income…

Read more »

a couple embrace in front of their new home
Investing Articles

3 FTSE shares I’m buying with the Help to Build scheme!

Last week, the government launched a new, Help to Build scheme. So, here are three FTSE shares that could benefit…

Read more »