Investing in UK shares is, in my view, one of the best ways to make a large and reliable second income. I also believe that buying dividend-paying exchange-traded funds (ETFs) can be an effective way to reach the same goal.
Here’s a top FTSE 250 share and a Europe-focused ETF I’d buy for passive income if I had cash to invest today.
NextEnergy Solar Fund
Electricity is one of modern society’s essential commodities. And so investing in one of the London stock market’s energy producers can be a great way to source a dividend income.
NextEnergy Solar Fund (LSE:NESF) is one such company on my watchlist right now. As the name implies, this particular operator focuses its attention on renewable energy.
Today it owns and operates more than 100 solar farms across the UK, Italy, Spain and Portugal. It also has a small handful of energy storage assets up and running and in development.
Owning renewable energy stocks has advantages and disadvantages. In this case, power generation can take a dip when the sun’s rays are less strong, in turn impacting the amount of electricity it can sell to energy providers.
But on balance, I think the benefits of me owning this dividend share may outweigh the risks, and significantly too. Profits here could boom over the next decade as Europe transitions from fossil fuels towards clean energy.
Its broad footprint spanning Northern and Southern Europe also reduces the risk of weather-related disruption on group profits.
Today, NextEnergy provides a 10.9% forward dividend yield. This is one of the biggest on the FTSE 250, and underlines the share’s appeal as a top dividend stock.
iShares MSCI Europe Quality Dividend ESG ETF
Investing in a dividend-paying exchange-traded fund (ETF) can also provide a path to a reliable second income. One I’d happily buy for my own portfolio today is the iShares MSCI Europe Quality Dividend ESG ETF (LSE:EQDS).
Funds like this can offer stable dividends thanks to their diversification across a wide spectrum of shares. Investing across mutiple industries and countries means the ETF can provide a smooth return over time, regardless of any company or sector-specific woes, and even trouble in the wider economy.
This particular iShares product includes industrial giant Schneider Electric, financial services provider Zurich and drinks manufacturer Diageo. In total, it has cash spread across 70 different businesses.
During the past five years, the fund has delivered an average annual return of 9.1%. This is far above the 5.8% return that iShares’ FTSE 100-backed fund has delivered over the same timeframe.
The ETF’s focus on Europe means it has less geographical diversification compared to a more global fund. If the region’s core economies (like Germany) continue struggling, it might deliver sub-par returns compared with the latter.
But on balance, I think it’s still a good way for me to try and source a dependable passive income. And today its forward dividend yield is a healthy 4%.
