2 dividend ETFs to consider for a long-term second income
Exchange-traded funds (ETFs) can be a great way to source a second income. Whether through dividend growth, high dividend yields, or both, these diversified products can deliver a steady long-term income to suit any investing style.
Demand for them continues to take off, with European ETFs experiencing inflows of $30.8bn and $31.6bn in July and August, respectively. According to Invesco, this was “the strongest two-month run since February“.
Offering diversification across regions, industries, and even asset classes, these funds can cushion the impact of individual stock shocks and deliver a steady return. Here are two I think demand serious attention today.
US shares
The iShares US Equity High Income ETF (LSE:INCU) holds shares in 209 different Wall Street-listed companies. But its name is somewhat misleading, as it also generates an income from cash, as well as the BlackRock ICS US Treasury Fund, which owns government bonds.
The guaranteed returns these assets provide give the fund’s passive income flows more stability. They also reduce the fund’s exposure to stock market volatility.
I especially like this iShares ETF’s heavy weighting of information technology shares, with companies like Nvidia, Amazon, and Microsoft making up 31.6% of the entire fund. Indeed, it owns each one of the Magnificent Seven tech stocks. These companies have delivered a combined average annual return of roughly 40% over the last decade.
Of course, this tech bias can leave the fund vulnerable to economic downturns. However, it also creates substantial long-term growth potential, as phenomena like artificial intelligence (AI), cloud computing, and robotics take off.
The fund’s exposure to defensive industries like consumer goods, utilities, telecoms, and healthcare also helps provide a smooth return across the economic cycle.
For 2025, the iShares US Equity High Income ETF carries a substantial 9.7% forward dividend yield.
Property powerhouse
The iShares MSCI Target UK Real Estate (LSE:UKRE) is another top fund to consider for a large and stable second income over time.
This is because it’s loaded more specifically with real estate investment trusts (REITs). These companies receive sizeable tax breaks, such as exclusion from corporation tax. And in return they’re required to pay a minimum of 90% of yearly rental earnings out in the form of dividends.
This doesn’t necessarily guarantee a large and growing passive income. Some property stocks concentrate on cyclical sectors like industrials and retail, where occupancy and rent collection issues can be common during downturns.
But ETFs like this iShares one reduce (if not completely eliminate) such pressures by holding a variety of property stocks. In this case, the portfolio holds 29 different companies. And these range across multiple industries, like logistics, self-storage, healthcare, and student accommodation, limiting the fund’s vulnerability to adverse economic conditions.
It also holds government bonds — in this case, UK gilts — providing extra income visibility.
For this year, the iShares MSCI Target UK Real Estate’s dividend yield is an enormous 7.5%.
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Royston Wild has no position in any of the shares mentioned. The Motley Fool UK has recommended Amazon, Microsoft, and Nvidia. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.
