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Many individuals start their investing journey in April, coinciding with the beginning of the brand new £20,000 annual Shares and Shares ISA allowance. Naturally, some buyers will probably be trying to construct a portfolio of dividend shares designed to generate a second earnings from day one.
Nevertheless, discovering and researching shares to kind a suitably diversified portfolio generally is a laborious activity. It might not enchantment to those that want issues to quietly chug alongside within the background.
Does this hands-off investing method sound interesting? Effectively, that’s the place exchange-traded funds (ETFs) are available very useful, as they provide a approach to spend money on a variety of shares or bonds in a single bundle.
Right here, I’ll spotlight one dividend-focused ETF that I believe is value contemplating.
Holding up properly within the storm
iShares UK Dividend UCITS ETF (LSE: IUKD) presents a ready-made portfolio of round 50 UK shares with excessive dividend yields. Proper now, the highest 5 holdings are British American Tobacco, Authorized & Normal, Rio Tinto, BP, and Nationwide Grid.
That appears like a balanced unfold of shares to me, as they’re all sturdy FTSE 100 firms of their respective sectors of tobacco, insurance coverage, mining, oil, and utilities.
The dividend yields are good and chunky, with British American Tobacco and Authorized & Normal sporting 7.6% and 9% yields, respectively. The ETF’s trailing yield is available in at a good 5.33%, which is larger than the FTSE 100’s 3.5%.
Plus, many UK dividend shares have held up fairly properly in the course of the latest market turmoil. Certainly, the ETF is definitely up 7% 12 months so far, which is an honest displaying. Against this, the tech-driven Nasdaq Composite is down 10% in 2025.
The five-year whole return (share value and dividends) is round 100%, which is unbelievable. That stated, it must be famous that the place to begin there — the primary half of 2020 — was in the course of the onset of the pandemic when share costs had been low.
Dangers to remember
Sadly, simply because UK dividend shares have held up properly up to now this 12 months, it doesn’t imply additionally they gained’t head south if the US/world economic system enters a recession later this 12 months.
This can’t be dominated out, with the US-China commerce conflict heating up and plenty of firms nonetheless in limbo round tariffs. In spite of everything, when America sneezes, the world catches a chilly, because the previous saying goes.
So, whereas I might anticipate low-cost UK shares to do higher than highly-valued US tech shares throughout a downturn, this case wouldn’t be best for the inventory market as an entire.
Furthermore, firms can cancel their dividends unexpectedly. Some may pause them throughout a recession.
That stated, the truth that the fund holds 50 shares does mitigate this danger.
Trouble-free passive earnings
As talked about, the ETF’s yield is 5.33%. Which means an investor who places £20,000 into it ought to anticipate to obtain round £1,066 in passive earnings yearly.
On high of that, there would probably be some share value appreciation over time.
Have been they to retain dividends as a substitute of spending them, the overall quantity would develop to roughly £40,500 after 10 years. A greater than doubling! This assumes the identical 5.33% yield and a modest 2% rise within the share value throughout this time, which isn’t assured after all.
