What are the Best Australian Dividend ETFs or LICs?

Introduction

Dividend investing has long been a cornerstone of wealth building for Australian investors, offering a reliable income stream alongside potential long-term capital growth. With Australia’s unique tax environment, particularly the benefit of franking credits, dividend-focused strategies have become especially appealing. This makes Exchange Traded Funds (ETFs) and Listed Investment Companies (LICs) popular choices for those seeking consistent, tax-efficient income from their portfolios.

ETFs and LICs both provide diversified exposure to high-yielding stocks, but they come with different structures, fee models, and management styles. Understanding these differences is crucial when selecting the best options for your dividend-focused portfolio. This section will explore the benefits, drawbacks, and key considerations for each, helping you make an informed choice.

Understanding Dividend ETFs and LICs

What are Dividend ETFs?

Dividend ETFs are funds that hold a diversified basket of high-yielding stocks, typically designed to track an index or follow a defined strategy. They offer the advantage of passive management, lower fees, and broad market exposure. Key features include:

Passive vs. Active Management: Most dividend ETFs are passively managed, tracking a benchmark index like the S&P/ASX 200, but some may have a more active approach.
Yield, Diversification, and Cost: Typically offer lower costs compared to actively managed funds, with a focus on high, stable dividend payouts.

What are Dividend LICs?

LICs, in contrast, are actively managed closed-end investment funds listed on the ASX. They aim to deliver consistent dividends to shareholders while providing the potential for capital appreciation over time. Key characteristics include:

Active Management: Unlike ETFs, LICs are typically actively managed, with portfolio managers selecting individual stocks based on specific strategies.
Long-Term Focus: Many LICs aim for capital growth alongside steady income, often holding stocks for the long term.
Portfolio Diversification and Income: LICs can provide concentrated exposure to high-quality dividend-paying companies, often with a bias towards Australian large caps or select international markets.

Compare dividend ETFs and LICs for investment strategy when considering dividend investing approach

Top Australian Dividend ETFs

Australia offers a diverse range of dividend-focused ETFs that cater to different investor preferences, from high-yield strategies to ESG-focused funds. Here are some of the top Australian dividend ETFs to consider in 2025:

VHY.ASX (Vanguard Australian Shares High Yield ETF)

Overview: One of the most popular choices for dividend-focused investors, VHY tracks the FTSE Australia High Dividend Yield Index, providing exposure to high-yielding, large-cap Australian companies.
Key Features:
- High forecast dividends and strong franking credits.
- Broad diversification across major sectors like financials, materials, and healthcare.
- Low management fee compared to actively managed funds.
Notable Holdings: BHP, CBA, Telstra, Transurban.

YMAX.ASX (BetaShares Australian Top 20 Equity Yield Maximiser Fund)

Overview: Known for its high yield, YMAX uses a covered call strategy to enhance income from Australia’s 20 largest blue-chip stocks.
Key Features:
- High income potential through options premium.
- Relatively lower diversification compared to broader ETFs like VHY.
- Moderate franking credits, reflecting the composition of its portfolio.
Notable Holdings: Top 20 ASX blue chips, including the major banks and miners.

ZYAU.ASX (ETFS S&P/ASX 200 High Yield Plus ETF)

Overview: This ETF focuses on the highest dividend-yielding companies within the S&P/ASX 200, aiming to capture both yield and capital growth.
Key Features:
- High franking credits, enhancing after-tax returns.
- Diversified across sectors with a focus on financials and resources.
Notable Holdings: NAB, Westpac, ANZ, BHP.

IHD.ASX (iShares S&P/ASX Dividend Opportunities ETF)

Overview: A strong choice for ESG-focused investors, IHD targets companies with high dividend yields and positive ESG characteristics.
Key Features:
- ESG screened, reducing exposure to potentially controversial sectors.
- High yield focus with moderate diversification.
Notable Holdings: 50 diversified stocks including major banks and resource companies.

SYI.ASX (SPDR MSCI Australia Select High Dividend Yield Fund)

Overview: Known for its consistent, sustainable yield, SYI offers broad diversification and a focus on quality dividend-payers.
Key Features:
- Persistent income with a focus on quality and sustainability.
- Lower volatility compared to more concentrated, high-yield strategies.
Notable Holdings: A mix of large, mature companies across various sectors.

Leading Australian Dividend LICs

Dividend-focused LICs (Listed Investment Companies) provide investors with access to actively managed portfolios that prioritize income generation and long-term capital growth. Unlike ETFs, which passively track indexes, LICs rely on professional management teams to select high-quality dividend stocks. Here are some of the leading Australian dividend LICs for 2025:

RF1.ASX (Regal Investment Fund)

Overview: Known for its market-leading, multi-strategy approach, RF1 delivers a diversified stream of income from various asset classes, including equities, private credit, and real assets.
Key Features:
- Strong performance and consistent dividends.
- Focus on absolute returns, with a track record of outperformance.
- Low correlation to the broader equity market, providing a degree of downside protection.

WLE.ASX (WAM Leaders Limited)

Overview: Managed by the highly respected Wilson Asset Management team, WLE focuses on large-cap Australian companies with strong balance sheets and reliable dividend histories.
Key Features:
- Focus on dividend growth and capital stability.
- Actively managed, with a history of outperforming the ASX 200.
- Regular, fully franked dividends.

NCC.ASX (Naos Emerging Opportunities Company)

Overview: Offers exposure to smaller, emerging companies with the potential for high dividend yields, though it comes with higher volatility.
Key Features:
- High yield but significant share price volatility.
- Strong focus on alignment with shareholder interests, with significant insider ownership.
- Regular franked dividend distributions.

FGX.ASX (Future Generation Investment Company)

Overview: Unique among LICs, FGX provides diversified exposure to leading Australian fund managers while supporting Australian charities.
Key Features:
- No management fees, with fund managers providing their services pro bono.
- Focus on capital preservation and steady income.
- High franking credits, enhancing after-tax returns.
- Philanthropic focus, directing part of the profits to charity.

Key Considerations for Investors

Investing in dividend-focused ETFs and LICs comes with a unique set of considerations that can significantly impact long-term returns. Here are the key factors investors should weigh when building a dividend-focused portfolio:

Yield vs. Stability

While high yields can be attractive, they often come with higher risk. It’s essential to balance the pursuit of high income with the stability of capital. For instance, ETFs like YMAX.ASX may offer very high yields through covered call strategies, but they can be more volatile and potentially cap capital gains. In contrast, LICs like WLE.ASX focus on large, stable companies, providing more consistent but potentially lower income.

Diversification Benefits

ETFs generally provide broader diversification than LICs, as they tend to hold a larger number of securities across multiple sectors. For example, VHY.ASX includes a diversified mix of large-cap companies, while LICs like NCC.ASX may concentrate on smaller, more volatile stocks, increasing potential risks and rewards.

Impact of Franking Credits

Franking credits are a critical component of dividend investing in Australia, significantly boosting after-tax returns for local investors. ETFs like SYI.ASX and LICs like FGX.ASX often provide high levels of franking, making them particularly tax-efficient for Australian investors.

Management Fees and Cost Considerations

ETFs typically have lower management fees than actively managed LICs. For example, VHY.ASX and SYI.ASX offer lower ongoing costs due to their passive nature, while LICs like RF1.ASX may have higher fees but potentially stronger long-term performance due to active management.

Conclusion

Choosing the right mix of dividend-focused ETFs and LICs is a critical step in building a resilient, income-generating portfolio. Investors should consider their income needs, risk tolerance, and long-term goals when selecting these assets. While ETFs like VHY.ASX and SYI.ASX offer broad diversification and low fees, LICs like RF1.ASX and WLE.ASX provide the potential for active management benefits and more targeted exposure to high-quality, dividend-paying companies.

Ultimately, the best choice will depend on your investment strategy, whether it’s maximizing yield, focusing on stability, or supporting long-term capital growth. Regularly reviewing your holdings and staying informed about market trends will help you make the most of these powerful income-focused tools.

Resources for Further Reading

For those looking to dive deeper into the world of dividend investing, here are some valuable resources: