ANZ Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) are two of Australia’s favourite dividend shares.
However, looking forward beyond 2019, I’m not in a rush to buy either Westpac or ANZ shares because I believe the Australian economy’s current state will make it very difficult for either bank to grow considerably faster than high quality smaller ‘mid-cap’ shares or shares exposed to overseas markets.
Fortunately, if you aren’t focused on growth as much as I am, but you would still like exposure to some fully franked dividends from the banks, low-cost Australian share ETFs may perhaps offer the best of both words.
I’m talking about low-cost index fund ETFs, not ‘smart beta’ or ‘factor’ ETFs. Here’s an explainer video of index funds:
To me, a diversified but still high yielding, dividend-paying ASX ETF, such as an Australian shares ETF like BetaShares A200 ETF (ASX: A200), Vanguard Australian Shares ETF (ASX: VAS) or the Spdr ASX 200 ETF (ASX: STW), would be better than buying bank shares directly.
Why?
Unlike Westpac and ANZ shares, the distributions/dividends from A200, VAS and STW are not beholden to the fortunes of just one company or sector — banking. These three ETFs have shares of many different companies inside their portfolios (between 200 and 300 each). Some don’t pay dividends but many do.
Due to their low costs and simplicity, three of my favourite Australian share ETFs are:
- Vanguard Australian Shares ETF (VAS): The VAS ETF provides exposure to the largest 300 Australian shares, based on market capitalisation. It has a yearly management fee of 0.10%.
- BetaShares A200 ETF (A200): The Betashares A200 ETF provides exposure to the largest 200 Australian shares. Unlike many other Australian share ETFs, A200 uses the Solactive Australia 200 Index. It has a yearly management fee of 0.07%.
- SPDR S&P/ASX 200 ETF (STW): The STW ETF provides exposure to the largest 200 Australian shares, also based on market capitalisation. It has a yearly management fee of 0.19%.
You should do your own investigating into any ETF before you buy, including reading the Product Disclosure Statement (PDS), which describes many of the risks. It should be available on the ETF provider’s website.
Summary
While the dividend yield might not always be as high from these three ETFs as ANZ or Westpac shares, I reckon it’s a safer way to generate income from the Australian share market because you’re exposing your portfolio to more than just one business model. In the face of a weaker economy that mightn’t be such a bad thing.
To get the names of three proven ASX dividend shares, grab a copy of our free investing report below.
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Disclosure: At the time of publishing, Owen does not have a financial interest in any of the companies mentioned.
