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Many individuals start their investing journey in April, coinciding with the beginning of the brand new £20,000 annual Stocks and Shares ISA allowance. Naturally, some traders shall be trying to construct a portfolio of dividend shares designed to generate a second earnings from day one.
Nevertheless, finding and researching shares to kind a suitably diversified portfolio could be a laborious process. It might not attraction to those that desire 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 in very useful, as they provide a solution 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 feel is value contemplating.
Holding up effectively within the storm
iShares UK Dividend UCITS ETF (LSE: IUKD) affords a ready-made portfolio of round 50 UK shares with excessive dividend yields. Proper now, the highest 5 holdings are British American Tobacco, Authorized & Basic, 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 & Basic sporting 7.6% and 9% yields, respectively. The ETF’s trailing yield is available in at a decent 5.33%, which is increased than the FTSE 100’s 3.5%.
Plus, many UK dividend shares have held up fairly effectively throughout the current market turmoil. Certainly, the ETF is definitely up 7% 12 months up to now, which is a good exhibiting. 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 mentioned, it ought to be famous that the place to begin there — the primary half of 2020 — was throughout the onset of the pandemic when share costs have been low.
Dangers to remember
Sadly, simply because UK dividend shares have held up effectively to this point this 12 months, it doesn’t imply in addition they gained’t head south if the US/international financial system enters a recession later this 12 months.
This can’t be dominated out, with the US-China commerce struggle heating up and plenty of firms nonetheless in limbo round tariffs. In any case, when America sneezes, the world catches a chilly, because the outdated saying goes.
So, whereas I’d anticipate low cost UK shares to do higher than highly-valued US tech shares throughout a downturn, this example wouldn’t be preferrred for the inventory market as an entire.
Furthermore, firms can cancel their dividends unexpectedly. Some may pause them throughout a recession.
That mentioned, 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%. Because of this an investor who places £20,000 into it ought to anticipate to obtain round £1,066 in passive earnings yearly.
On prime of that, there would seemingly be some share value appreciation over time.
Have been they to retain dividends as a substitute of spending them, the whole 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.
