Here, I’m going to reveal how an investor could potentially build a portfolio that’s capable of providing a fantastic income stream with just one investment fund. If you’re interested in taking a ‘lazy’ approach to portfolio construction, this product could be worth a closer look!

An ETF with a fantastic yield

The product I want to highlight today is the WisdomTree Europe Equity Income UCITS ETF (LSE: EEI). It’s an exchange-traded fund that offers exposure to high-yielding, dividend-paying companies in both the UK and Europe.

With this ETF, an investor gets exposure to a whole basket of high-yield stocks with just one click. Examples of stocks in the portfolio include HSBC Holdings, Rio Tinto, BP, and AXA SA.

Currently, around 20% of the ETF’s allocated to UK stocks. The other 80% is spread out over stocks in European countries such as France, Spain, and Italy.

As for the yield, it’s about 5% at the moment. That’s significantly higher than the yield on the FTSE 100 index (roughly 2.9%) and much higher than the interest rates most UK savings accounts are paying now.

Three benefits of this ETF

To my mind, this product has a lot going for it (beyond the attractive dividend yield). I like the fact that it offers exposure to both UK and European companies. This means it provides far more diversification than a simple FTSE 100 or UK equity tracker fund.

I also like the fee structure. Ongoing fees are only 0.29% – that’s very reasonable.

Finally, I like the fact that the ETF can be held inside a Stocks and Shares ISA. This means that any income generated can be completely tax-free.

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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

What’s the catch?

Of course, it’s not perfect. With a focus on high-yield dividend stocks (which are often low-growth value stocks), it may not generate as high total returns (dividends plus share price gains) as some other ETFs.

Last year, it did really well, returning a whopping 28% in total (in euro terms). However, since its inception in 2014, it has only returned about 6.4% a year all up.

Another issue is that it’s possible to find higher yields in the market from individual stocks. For example, on the London Stock Exchange today, there are plenty of stocks that yield 7% or higher.

An ideal core holding for income?

I think it could potentially be a great foundation for a passive income portfolio however, and is worth considering as an income play. With just one product (and an ISA), an investor could generate a tax-free income stream of around 5%.

They could then add a few individual high-yield dividend stocks on top to boost their yield. You can find plenty of information on these kinds of stocks right here at The Motley Fool.

The post How to build a ‘lazy’ passive income portfolio with just 1 UK ETF appeared first on The Motley Fool UK.

Looking to create a passive income stream with minimal effort? Here are three brilliant funds to consider investing in.

Passive income with minimal risk

First up, we have the Fidelity Cash fund. This is a short-term money market fund, meaning that it invests in high-quality, short-term fixed income securities and cash-like securities in an effort to provide a healthy yield for investors with minimal risk.

Currently, the yield here is about 4.5% (fees on Hargreaves Lansdown are 0.15%). Income can be tax-free if the fund is held in a Stocks and Shares ISA.

I have some money in this fund as I see it as a great place to park cash I’m not investing (in the stock market). With this product, I can pick up a solid yield and not have to worry about the value of my investment falling.

It’s worth noting that while short-term money market funds are designed to be risk-free, a large-scale global financial collapse (like the Global Financial Crisis of 2008/2009) could impact them negatively. That’s something to keep in mind – while they’re very low risk, they’re not as safe as cash itself.

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. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

40+ years of income growth

Next we have the Merchants Trust (LSE: MRCH). This is an income-focused investment trust that aims to deliver a high-and-rising income (along with some capital growth).

It predominantly invests in higher-yield UK stocks. Currently, its yield is about 4.8% (fees are 0.52%).

There are a few things I like about this trust. One is that it has increased its payout every year for over 40 years (so it has provided inflation protection for investors).

I also like the fact that its overall performance has been solid. Over the five-year period to the end of November, it outperformed the FTSE All-Share index while simultaneously generating a higher yield for investors.

I’ll point out that it’s possible to lose money with this fund. If UK dividend stocks underperform, this fund’s likely to underperform too.

I think it’s worth considering as a part of a diversified income portfolio however.

A basket of UK and European high-yield dividend stocks

Finally, we have the WisdomTree Europe Equity Income UCITS ETF (LSE: EEI). This is an exchange-traded fund that’s income focused.

A rules-based fund, it invests in the highest dividend-yielding European companies (including UK companies) but takes quality and share price momentum into consideration when selecting companies for investment (and excludes companies that do not meet ESG criteria). At present, it offers a yield of about 5.3% (fees are 0.29%).

I see this product as a good portfolio diversifier. While it provides exposure to UK stocks, the majority of the fund (about 80%) is allocated to European equities.

Of course, an economic slowdown in Europe is a risk here. Sized properly within a portfolio however, I think considering it could potentially add value and help to generate a solid passive income stream.

The post 3 brilliant funds for passive income in the UK appeared first on The Motley Fool UK.

Investing in an exchange-traded fund (ETF) can greatly reduce the impact of such eventualities on an individual’s overall returns. By holding a wide variety of dividend-paying shares, these funds spread risk and can offer a more consistent dividend even if some companies held in the fund falter.

With this in mind, here are three great dividend-focused ETFs to consider today. As you can see, their forward dividend yields beat the FTSE 100 average of 3.7% by a comfortable margin.

Continental colossus

The WisdomTree Europe Equity Income UCITS ETF (LSE:EEI) holds shares in 255 businesses in the UK and on Mainland Europe. For this financial year its dividend yield is a meaty 6.6%.

This high yield can be explained partly by the large proportion (around 21% of the total fund) of British shares that it holds. Largely speaking, companies on these shores have a stronger culture of paying large and growing dividends than their continental counterparts.

Less than a third of its capital is tied up in its 10 largest holdings (which include banking giant HSBC, utilities operator Enel, and energy producer TotalEnergies), and its exposure extends across a wide variety of sectors.

Returns may disappoint in the event of a eurozone-wide slowdown. But on balance, I think it’s a well diversified ETF to consider.

Dividend angel

The Invesco US High Yield Fallen Angels ETF (LSE:FAHY) doesn’t invest in equities. Instead, it focuses on corporate bonds that are below investment-grade status.

More specifically, it’s designed to track “the performance of ‘fallen angels’ — bonds which were previously rated investment-grade, but were subsequently downgraded to high-yield“.

Some 97.5% of its portfolio is dedicated to instruments with an investment rating of BB or below. This creates greater danger for investors, but it also results in a sky-high dividend yield. The forward dividend yield here is a robust 7%.

Some of the ETF’s largest holdings include bonds from healthcare provider CVS Health, aluminium producer Alcoa, and chemicals manufacturer OCI Global. In total, its portfolio comprises 74 different holdings, providing investor returns with protection against one or two possible defaults.

World beater

As its name implies, the iShares World Equity High Income UCITS ETF (LSE:WINC) is loaded with yield-rich companies from across the globe. Consequently, its forward dividend yield is an enormous 9.1%, putting it in the top seven highest-yielding ETFs currently available in the UK.

In total, the product holds shares in 328 different businesses from across the globe. This broad geographic footprint can help it absorb localised problems better than funds that are focused on certain regions.

What’s more, this iShares ETF holds non-equity assets like US government-backed securities and cash. It’s a strategy that provides even greater stability over time.

It’s also worth noting the fund’s high exposure to technology shares like Microsoft, Nvidia, and Meta. While such shares can be more volatile across the economic cycle, they also have significant growth potential.

The post Dividend yields up to 9.1%! Here are 3 ETFs to consider for a huge passive income appeared first on The Motley Fool UK.

Navigating this challenging environment requires a thoughtful approach. One potential strategy could be to target a diversified income stream with an exchange-traded fund (ETF). With these vehicles, the broader portfolio helps reduce the impact of one or two companies cutting dividends on overall returns.

Funds can contain dozens, hundreds, or even thousands of UK and overseas shares, providing better diversification that an individual can realistically hope for by buying individual stocks. With this in mind, here are two high-yield ETFs I think demand a close look.

iShares UK Dividend UCITS ETF

At 5.2%, the 12-month trailing dividend yield on the iShares UK Dividend UCITS ETF (LSE: IUKD) comfortably beats the corresponding reading of the blue-chip FTSE 100 index.

This sits way back at 3.5%, suggesting an investment in this iShares fund may be a better choice for individuals chasing higher yields than a FTSE-tracking fund.

In total, this iShares products has holdings in 51 different UK shares. More specifically, its designed to provide “diversified exposure to UK companies to the higher yielding sub-set of the FTSE 350“.

The fund’s spread across a range of industries and sub-sectors to give it strength and provide a stable passive income across the economic cycle. Defensive plays such as British American Tobacco and National Grid are among some of its largest holdings, as are more cyclical businesses Aviva, Rio Tinto and HSBC.

There are a couple of drawbacks here. Its focus on UK shares could leaves it more regionally exposed than more global ETFs. It also contains around half the number of holdings as a FTSE 100 ETF.

But that giant yield still makes it worth serious attention, in my book.

WisdomTree Europe Equity Income UCITS ETF

For investors seeking superior geographical diversification, the WisdomTree Europe Equity Income UCITS ETF (LSE:EEI) could be just the ticket.

It’s “comprised of the highest dividend-yielding European companies,”, WisdomTree says. These are “risk-filtered using a composite risk score screening which is made up of two factors (quality and momentum) [with] each carrying an equal weighting“, it adds.

What this means is its 12-month trailing dividend yields an enormous 6.2%.

In total, the ETF has holdings in 255 different dividend shares. UK stocks are its most significant allocation, though this comprises just 20.7% of the total fund. It also provides substantial exposure to France, Italy, Spain and Germany, and a dozen more European nations.

I also like this fund because it prioritises companies with ESG characteristics, which in turn reduces exposure to long-term regulatory and reputational risks. Major holdings include HSBC, renewable energy producer Enel and Allianz.

Around 29.1% of this WidsomTree product is tied up in financial services, which may leave it more vulnerable during economic downturns. But on the plus side, it also gives the fund serious long-term growth potential. I think it’s a great dividend fund to consider.

The post 2 top ETFs for investors seeking high-yield dividend shares to consider! appeared first on The Motley Fool UK.