Building a passive income stream from ASX dividend shares often means choosing individual companies and monitoring their payouts.
But if you're not a fan of stock picking, don't worry. There is a simpler approach. Exchange traded funds (ETFs) allow investors to access a diversified group of income-generating shares through a single investment.
Two ASX ETFs stand out for those focused on dividend income.
Vanguard Australian Shares High Yield ETF (ASX: VHY)
The first ASX ETF to consider is the Vanguard Australian Shares High Yield ETF.
It provides exposure to a broad group of ASX shares with higher forecast dividend yields.
It tracks the FTSE Australia High Dividend Yield Index, which focuses on companies expected to pay above-average dividends. The portfolio is diversified, with limits of 40% per industry and 10% per company. It also excludes A-REITs.
The fund includes some of the largest income-generating companies on the ASX. Its top holdings feature names such as BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Woodside Energy Group Ltd (ASX: WDS), and Telstra Group Ltd (ASX: TLS).
This structure allows investors to access a wide range of dividend-paying shares without relying on a small number of companies. It also offers a low-cost way to build exposure to income across the Australian market.
Betashares S&P Australian Shares High Yield ETF (ASX: HYLD)
Another ASX ETF to consider for passive income is the Betashares S&P Australian Shares High Yield ETF.
It takes a similar approach to dividend investing. It provides exposure to a portfolio of 50 Australian shares with high forecast dividend yields. The fund also applies additional screening to improve the quality of those yields.
This includes filtering out potential dividend traps, such as companies expected to pay unsustainably high dividends or those with elevated volatility relative to their forecast payouts.
The portfolio also includes major ASX names such as BHP, Westpac, ANZ Group Holdings Ltd (ASX: ANZ), and Macquarie Group Ltd (ASX: MQG).
Another positive is that the Betashares S&P Australian Shares High Yield pays income monthly, which may appeal to investors looking for more regular cash flow.
A simpler way to generate passive income
Using ASX ETFs like these removes much of the complexity from dividend investing.
Instead of selecting and managing individual ASX dividend shares, investors can gain diversified exposure to high-yield companies through a single trade.
The post The easy way to buy ASX dividend shares and build passive income appeared first on The Motley Fool Australia.
Motley Fool contributor James Mickleboro has positions in Woodside Energy Group Ltd. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended Macquarie Group. The Motley Fool Australia has positions in and has recommended Macquarie Group and Telstra Group. The Motley Fool Australia has recommended BHP Group and Vanguard Australian Shares High Yield ETF. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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