Building a passive income stream from the share market isn't as hard as you think.
Rather than relying on a handful of dividend-paying ASX stocks, many investors use exchange traded funds (ETFs) to access a broader pool of income-generating companies.
This can help smooth out returns and reduce the impact of any single company cutting its payout.
Here are two ASX ETFs that offer different approaches to generating income.
Vanguard Australian Shares High Yield ETF (ASX: VHY)
The first ASX ETF for income investors to look at is the Vanguard Australian Shares High Yield ETF.
This popular fund focuses on Australian shares with higher forecast dividend yields. It provides exposure across sectors, while applying limits to reduce concentration in any single industry or company.
Its holdings include shares such as BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Telstra Group Ltd (ASX: TLS), and Woodside Energy Group Ltd (ASX: WDS).
Commonwealth Bank highlights the type of income this ETF targets. As Australia's largest bank, it has a long history of paying dividends and benefits from a dominant position in the domestic market.
By combining multiple high-yielding companies in one portfolio, this fund offers a diversified source of income that can be easier to manage than holding individual shares.
At present, the Vanguard Australian Shares High Yield ETF offers an attractive trailing dividend yield of 4.15%.
BetaShares Global Royalties ETF (ASX: ROYL)
Another ASX ETF worth considering for a passive income portfolio is the BetaShares Global Royalties ETF.
This fund takes a different approach by focusing on companies that earn revenue through royalties rather than traditional operations.
Because royalty-based businesses often have lower capital requirements, they are able to return more of their earnings to shareholders than other companies.
The BetaShares Global Royalties ETF's holdings currently include companies such as Franco-Nevada Corporation (NYSE: FNV), Texas Pacific Land Corporation (NYSE: TPL), and Wheaton Precious Metals Corp (NYSE: WPM).
Franco-Nevada provides a useful example of the type of holding you will get with this fund. It earns royalties from mining operations, giving it exposure to commodity production without the same level of operational risk as miners themselves. This can support more stable cash flows over time.
The BetaShares Global Royalties ETF currently trades with a generous trailing dividend yield of 5.4%.
The post The best ASX ETFs to buy for 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 no position in any of the stocks mentioned. The Motley Fool Australia has positions in and has recommended 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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