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Get high income at low cost via dividend ETFs

A new range of income-focused ETFs are returning more than the average benchmark and paying out more

In an environment of low interest rates and paltry yields it is increasingly hard to find income investments at a reasonable price and without taking high risk. But a new wave of equity income exchange traded funds (ETFs) are offering a basket of high-yielding stocks for a low ongoing charge.

There are more than 36 equity income ETFs on the London Stock Exchange tracking high-dividend-paying companies, and many are outperforming standard indices while paying out more - and at lower risk. But beware the side-effects of a strong sector tilt and high concentration.

Income-focused ETFs can offer yields of around 2-3 per cent above their markets at a lower risk. But you need to know which method yours is using. Traps await investors who target high yields, but don't keep an eye on sustainability or look only to past income payers without considering the income stocks of the future.

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