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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 shall be seeking to construct a portfolio of dividend shares designed to generate a second earnings from day one.
Nevertheless, discovering and researching shares to type a suitably diversified portfolio generally is a laborious job. It could not attraction to those that desire issues to quietly chug alongside within the background.
Does this hands-off investing strategy sound interesting? Properly, that’s the place exchange-traded funds (ETFs) are available in very helpful, as they provide a method to put money into a variety of shares or bonds in a single package deal.
Right here, I’ll spotlight one dividend-focused ETF that I believe is value contemplating.
Holding up nicely 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 & Common, Rio Tinto, BP, and Nationwide Grid.
That appears like a balanced unfold of shares to me, as they’re all robust 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 & Common sporting 7.6% and 9% yields, respectively. The ETF’s trailing yield is available in at a decent 5.33%, which is greater than the FTSE 100’s 3.5%.
Plus, many UK dividend shares have held up fairly nicely throughout the latest market turmoil. Certainly, the ETF is definitely up 7% yr thus far, which is an honest exhibiting. Against this, the tech-driven Nasdaq Composite is down 10% in 2025.
The five-year complete return (share worth 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 throughout the onset of the pandemic when share costs have been low.
Dangers to keep in mind
Sadly, simply because UK dividend shares have held up nicely to this point this yr, it doesn’t imply in addition they received’t head south if the US/world financial system enters a recession later this yr.
This can’t be dominated out, with the US-China commerce battle 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 case wouldn’t be ultimate 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 threat.
Problem-free passive earnings
As talked about, the ETF’s yield is 5.33%. Which means that 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 worth appreciation over time.
Had been they to retain dividends as an alternative of spending them, the entire 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 worth throughout this time, which isn’t assured in fact.
