Best Income Funds UK for 2024
Every investor has a different financial goal that may depend on their age, amount of capital to invest, level of risk tolerance and retirement situation, among other factors. While many investors at the start of their working career may aim to grow their portfolio, those nearing or at retirement age may look to prioritise capital preservation or income, rather than growth.
Some investors may choose to spend their time trying to identify the best dividend stocks for income. Another option available to investors is income funds. These are funds that are optimised towards generating an income stream through dividend payments.
This article will explain what income funds are, the pros and cons of investing in them and the best income funds UK to keep on a watchlist.
Table of Contents
What Are Income Funds UK?
An income fund is a type of exchange-traded fund (ETF). These can be thought of as a basket of stocks that trade as a single share. This allows investors to receive the performance of all the companies in the ETF at once, through a single share transaction. The best five income funds UK in this article are ETFs that focus on trying to generate an income stream for the investor through dividends.
A dividend is a way in which a company rewards its shareholders with a portion of their profits. These dividend payments usually happen quarterly but there are some that are monthly dividend stocks. To some investors, a company paying out dividends makes the stock more attractive, because as long as the company is expected to keep doing business as usual, the company may be in a position to keep paying out a dividend.
However, one of the downsides is that the company is not investing that capital back into its own operations which may limit growth. While income investors may prioritise regular income and forego growth, other investors may favour growth instead of income. Of course, there is also the chance that a company may start to struggle and will stop paying out dividends and use the money to improve its operations.
Best Income Funds UK to Watch
With the explanations regarding ETFs and dividend investing out of the way, it is time to consider the best income funds UK to watch. Each of these ETFs is discussed in more detail further down the article.
Of course, what is the ‘best’ is subjective and will mean something different to each investor. Any form of investing comes with risks. But the list below serves as a starting point to build your research.
Here are five income funds UK to watch:
- Xtrackers FTSE 100 UCITS DR Income ETF - Top 100 UK Companies by Market Capitalisation, Distributing Dividends
- Xtrackers DAX UCITS DR Income ETF - Top 40 German Companies by Market Capitalisation, Distributing Dividends
- SPDR S&P UK Dividend Aristocrats UCITS ETF - UK Companies That Have Increased Their Dividend Payouts for the Last Consecutive 7 Years
- iShares STOXX Europe Select Dividend 30 UCITS ETF - Top 30 Eurozone Companies by Dividend Yield
- SPDR S&P Euro Dividend Aristocrats UCITS ETF - Eurozone Companies That Have Increased Their Dividend Payouts for the Last Consecutive 10 Years
Xtrackers FTSE 100 UCITS DR Income ETF- Top 100 UK Companies by Market Capitalisation, Distributing Dividends
ETFs under the name ‘Xtrackers’ are issued by the DWS Group, a German asset management company. This organisation used to be a part of Deutsche Bank until the company split off in an initial public offering. DWS Group is a well-established firm, with just over $800 million in assets under management.
Their Xtrackers FTSE 100 UCITS DR Income ETF was established in 2007 and tracks the FTSE 100 index. This index is composed of the top 100 UK companies by market capitalisation. These are generally considered to be ‘blue chip’ companies, meaning they are thought of as stable companies.
Two important terms investors browsing through the numerous ETFs on offer might see are ‘income’ and ‘distribution’. These terms indicate that the fund pays out the dividends generated by the underlying companies it holds rather than reinvesting these dividends back into the fund itself.
The top 10 companies in this ETF are AstraZeneca, Shell, HSBC, Unilever, BP, Diageo, British American Tobacco, Rio Tino, Glencore, and GSK. Currently, the dividend yield for the fund is 3.71% but this will change over time.
The stock trades under the ticker symbol ‘XUKX’ on the London Stock Exchange.
Xtrackers DAX UCITS DR Income ETF- Top 40 German Companies by Market Capitalisation, Distributing Dividends
The Xtrackers DAX UCITS DR Income ETF is issued by DWS Group and was launched in 2007. The fund focuses on the Deutscher Aktienindex (DAX), which represents the German stock market.
As such, investors familiar with German businesses might recognise some of the fund’s largest holdings, which include SAP, Siemens, Allianz, Deutsche Telekom, Airbus, Bayer, Infineon, BASF, Muenchener Rueckver and Mercedes Benz, among others. In total this ETF is composed of the 40 largest companies listed in EUR on the FWB Frankfurt Stock Exchange by market capitalisation.
This ETF distributes the dividends the underlying companies pay out to its shareholders, rather than reinvesting them into the fund itself. This is what makes the fund generate an income stream for the investor with a current dividend yield of 3.53%.
The fund trades on the London Stock Exchange under the ticker symbol ‘XDDX’.
SPDR S&P UK Dividend Aristocrats UCITS ETF - UK Companies That Have Increased Their Dividend Payouts for the Last Consecutive 7 Years
The SPDR S&P UK Dividend Aristocrats UCITS ETF tracks the UK High Yield Dividend Aristocrats index by S&P. This index measures the performance of 40 of the highest dividend-yielding stocks in the UK that increased their dividends or kept them stable for at least seven consecutive years.
The fund was launched in 2012 and its top 10 holdings include British American Tobacco, IG Group, Primary Health Properties, Legal & General, National Grid, Intermediate Capital Group, Hargreaves Lansdown, Schroders, Drax Group and Unilever.
Currently, the fund has a dividend yield of 4.21% and trades on the London Stock Exchange under the ticker symbol ‘SPYG’.
iShares STOXX Europe Select Dividend 30 UCITS ETF - Top 30 Eurozone Companies by Dividend Yield
iShares ETFs are managed by BlackRock, the largest asset manager in the world with over $8 trillion in assets under management. This US-based investment company is well-established in the world of investing and a familiar name to many investors.
The iShares STOXX Europe Select Dividend 30 UCITS ETF follows the Europe Select Dividend 30 index, which tracks the top 30 European stocks by dividends from the STOXX Europe 600 index. There are some additional conditions for inclusion in this index, such as the company having a dividend-to-earnings-per-share ratio of less than or equal to 60%. This is primarily to exclude companies which artificially inflate their dividend yield.
The top 10 holdings in the fund include Glencore, Endesa, Taylor Wimpey, Rio Tinto, A P Moller Maersk, Legal and General, ACS Actividades de Construccion Y, Yara International, Close Bros Group and SSE. Remember that these companies do not necessarily have a high market capitalisation, but are selected based on their high dividend yield.
Currently, the fund has a dividend yield of 5.57% and trades on the Frankfurt Stock Exchange. UK investors can access stocks and ETFs from exchanges all around the world through the Invest.MT5 account with Admirals.
SPDR S&P Euro Dividend Aristocrats UCITS ETF - Eurozone Companies That Have Increased Their Dividend Payouts for the Last Consecutive 10 Years
The SPDR (pronounced ‘spider’) ETFs are issued by State Street Global Advisors (SSGA), an investment manager easily in the same league as BlackRock with over $4 trillion in assets under management.
The SPDR S&P Euro Dividend Aristocrats UCITS ETF was launched relatively recently in 2012. This ETF tracks the Euro Dividend Aristocrats index by S&P, which includes companies within the eurozone that have increased their dividends for the last 10 consecutive years.
The fund comprises of 40 different companies. The top 10 holdings in the fund include Assicurazioni Generali, Ageas, Enagas, Bouygues, A2A, Allianz, UPM-Kymmene Oyj, Deutsche Post, EDP-Energias de Portugal and Elisa Oyj. Around 24% of the companies included are German, followed by Italy, France, Finland, Belgium and other European countries.
Currently, the fund has a dividend yield of 3.46% and the stock trades on the Frankfurt Stock Exchange.
How to Invest in Income Funds UK
With Admirals, you can invest in global stocks and ETFs with the following commissions:
- UK stocks – 0.1% of trade value, 1 GBP minimum commission.
- US stocks – From $0.02 per share, 1 USD minimum commission.
- Germany and France stocks - 0.1% of trade value, 1 EUR minimum commission.
You can learn more about investing commissions on the Admirals Contract Specification page. You can search for global stocks from the Invest.MT5 web platform and invest in four steps:
- Open an account with Admirals.
- Click on Trade on one of your live or demo trading accounts to open the web platform.
- Search for your symbol at the top of the search window.
- Click Create New Order in the bottom window to open a trading ticket to input your trade size, stop loss and take profit level.
Why Invest in the Best Income Funds UK?
The biggest question an investor needs to pose to themselves is whether they want to grow their portfolio through the appreciation of the share price, or whether they want to generate an income stream from holding the shares.
However, dividend investing does not necessarily mean a portfolio cannot grow. Companies that pay out high dividends still have the potential to grow but are likely to at a slower pace. Investors can also choose to reinvest their dividends to buy more shares which can help to compound the performance over time.
Ultimately, it is important for an investor to take some time to think about what their overall objective is and then choose the right investment strategy to achieve it. Whatever the approach, risk management should be the number one focus as any form of investing involves winning and losing.
FAQs on Income Funds UK
What is the best income fund?
There is no single best income fund as dividend yields and payouts change over time. It is important to do thorough research before investing and then rebalance the portfolio accordingly.
What should I invest in to generate income?
The investor that is looking to use their capital to receive an income may look for funds that mention dividends, income, or distribution. This means that there is a dividend or income payout that could potentially be used to generate income.
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