A: Thanks for the question.

The income ETFs are an alternative way to do it – although not the same. You can be pretty certain that you will get an ‘index’ return.

Vanguard’s ‘Australian Share High Yield’ ETF (ASX Code VHY) tracks the FTSE ASFA High Dividend Yield Index. Although it is a market capitalisation weighted index, it uses forecast dividend yields to work out the underlying index constituents. Over the 12 months to 31 October, it has returned a pretty impressive 32.65% (after fees).

ishares S&P/ASX High Dividend ETF (ASX Code IHD) tracks an index called the S&P/ASX Dividend Opportunities Index. This index comprises 50 stocks out of the ASX 300, selected according to yield, profitability, dividend stability and some other factors. The ETF has returned a less impressive 28.70% over the same 12 month period.

Interestingly, the largest stocks in the S&P/ASX Dividend Opportunities Index are Mineral Resources and Adelaide Brighton. Financial stocks only comprise 21.15% of the index.

Russell has the Russell High Dividend Australian Shares ETF (ASX Code RDV). It tracks the Russell Australian High Dividend Index, which comprises up to 50 larger cap companies, selected from those that are expected to make higher dividend payments. CBA is the fund’s largest holding – and 44.7% of the fund is in financials. Over the 12 months to 31 October, the fund has returned 31.12%.

As I said at the beginning, you will get an ‘index return’ – so it is worth understanding what the index is. I am not sure I am a huge fan of the ishares ETF (or more precisely, the S&P/ASX Dividend Opportunities Index), so if you are contemplating an ETF option, I would be inclined to look at Vanguard’s VHY followed by Russell’s RDV.