I’m searching for the best high-yield passive income shares for investors to consider this month. Here are two of my favourites.
iShares Euro Dividend ETF
My first selection is an exchange-traded fund (ETF), an effective instrument that might help investors diversify their portfolios. The one in question — the iShares Euro Dividend ETF (LSE:IDVY) — offers a 5.7% trailing dividend yield.
At £15.04 per share, it also offers excellent value in terms of earnings. Its corresponding price-to-earnings (P/E) ratio sits at just 8.5 times.
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I like the fact the fund’s portfolio is well diversified across different eurozone nations. Around 70% is locked in stocks listed from (in descending order) the Netherlands, France, Germany and Italy. In total, it holds shares in 30 businesses including ABN Amro, ING Group and Bankinter.
On the downside, its sector diversification is narrow, with nine of its 10 largest holdings being financial services companies. This means returns may disappoint in the event of any banking sector (or broader economic) shocks, compared with funds that span more industries.
In total, almost 60% of its the fund is tied up in cyclical financial stocks.
However, this vulnerability may be reflected in the fund’s ultra-low valuation. And investing here exposes me to less risk than putting all my eggs in basket with one or two cheap individual banking shares like Lloyds or Barclays.
Warehouse REIT
Warehouse REIT (LSE:WHR) may be a better choice for more risk-averse investors to consider. As the name suggests, this real estate investment trust (REIT) lets out storage hubs and distribution facilities to businesses.
The advantage here is that the trust’s tenants are tied into long-term contracts, providing a constant stream of income it can distribute to shareholders in the form of dividends.
REITs like this are in fact designed to provide shareholders with a steady stream of passive income. In exchange for certain tax perks, sector rules stipulate they pay at least 90% of annual rental profits through cash rewards.
Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.
Such property funds aren’t immune to downturns, however. If a shock is severe enough and revenues dry up, tenants may default on their rents, while occupancy can also drop. And Warehouse REIT has significant exposure to economically-sensitive industries like retail and logistics.
That said, many of the trust’s tenants are financially stable, blue-chip companies like Amazon, John Lewis and Argos, which reduces this danger. It also has hundreds of unique clients which, if one or two encounter difficulties, won’t create waves at group level.
Encouragingly, Warehouse REIT collected an impressive 99.3% of rents it was owed in the 12 months to June, latest financials showed. And its occupancy was a solid 96.4%.
As for the dividend yield, on a 12-month trailing basis this comes in at 7.5%. That’s more than double the FTSE 100 average, which sits way back at around 3.5%.
