6 ETFs for the income investor who doesn’t want Big Bank share price risk

The Australian sharemarket’s reputation as a dividend haven has come into question over the last 12 to 18 months. While the ASX 200’s price-to-earnings ratio has continued to rise to levels well beyond its historical average, both the dividend and earnings yields of the index have fallen substantially.

Theory and history suggest this isn’t normal, given earnings and dividends normally inform each other. So, what can you do if you’re an investor relying on dividend income who feels they are being left out in the cold?

In this article, we’ll share six ETFs from a range of asset classes that can help you maintain your desired income if you’re worried that the fall in dividends isn’t about to stop anytime soon.

Past performance is no indicator of future performance – until it is

For months, the share prices of the Big Four banks have defied gravity. A lot of this price appreciation has been driven by expectations rather than earning. The Australian banking sector, led by Commonwealth Bank (ASX: CBA), has the highest bank valuations globally.

But some less-than-impressive earnings updates may have finally brought that rally back down to earth. The ASX 200 Banks Index is down more than 11%¹ since CBA handed down its first half earnings report on 12 February.

But was this move a long time coming? The earnings of the entire Australian banking sector have been in a slow grind for some time. And had CBA not bumped its dividend up by 5%, it was entirely possible that the share price reaction would have been far more savage than it has been. Contrast these results to the recent US bank earnings we saw. Of the 17 stateside financial firms that have reported this earnings season, every single one delivered an upside surprise. Goldman Sachs and Morgan Stanley delivered 45% and 31% beats respectively² – or put into layperson’s terms, US financials have delivered better results at a less imposing valuation compared to our Australian counterparts.

No, the miners are not a place to hide either

Australia’s dividend-splurging reputation isn’t just built on the biggest banks. It’s also been built on the past success of our largest miners -– namely BHP, Rio Tinto, and Fortescue. During the August 2021 reporting season, BHP paid its largest dividend per share in its history: $2.72 a pop³.

But recently, that changed. BHP’s recent first-half earnings saw the company declare a 31% cut to its first half dividend⁴. Rivals Rio Tinto and Fortescue also reported massive cuts to their dividends, which were informed by material drops in commodity earnings.

All this is a long way of saying: if you were just investing in the Australian share market’s biggest dividend payers purely for its income, times are not what they used to be.

The above log chart shows each individual company’s contribution to the overall dividend yield of the ASX 200. The curve of the chart implies that the dividend yield of the ASX 200 is highly concentrated in the top 10 payers. This explains why the yield has declined so significantly so quickly – and why this may be an opportune time to look at alternatives.

3 options for income investors who want more from their equity investments

Investors looking to maintain banking exposure can consider the Betashares Global Banks Currency Hedged ETF (ASX: BNKS)

The Betashares Global Banks Currency Hedged ETF produced a 39%+ return⁵ in the last 12 months (10.17% since inception) and tracks some of the world’s largest banks including J.P. Morgan Chase & Co, Royal Bank of Canada, and HSBC. This ETF has a 12-month distribution yield of 2.3% (as at 31 January 2025) and it pays a distribution twice a year. BNKS is also currency hedged, meaning its returns could be accentuated in an environment of a strong US Dollar/weak Australian Dollar.

Investors looking to maintain income levels but don’t want to leave our foreshores can explore the Betashares Australian Dividend Harvester Active ETF (ASX: HVST)

The Betashares Australian Dividend Harvester Active ETF uses an active rules-based strategy to maximise the dividends and franking credits that can be gained from the top 100 shares on the ASX. This fund’s portfolio is rebalanced every three months to ensure the shares that are expected to pay the highest gross yields are included. In the last year, HVST produced a 10.26% net return, 8.01% net return since inception, and has a current monthly post-tax distribution yield of 5.7% (as at 31 January 2025.)

For a broader exposure to income-generating equities from across the world and a range of sectors, consider the Betashares Global Income Leaders ETF (ASX: INCM).

The Betashares Global Income Leaders ETF seeks to track the performance of the Nasdaq Global Income Leaders NTR Index, a special index comprising of 100 high yielding global companies selected for both their capital gain and income generating potential. Although the companies in this fund, like AT&T, Gilead and Bristol-Myers Squibb, are less familiar to Australian investors, INCM has generated 28.02% return in the last 12 months (8.72% since inception). In addition, it pays income quarterly and has a 4.2% 12-month distribution yield (as at 31 January 2025.)

3 ETFs for those who want more from their fixed income investments

Luckily, shares are not the only way to access yield from Australia’s largest financial institutions. Australian retail investors can access the bank debt market thanks to ETFs. This debt market includes floating rate bonds, subordinated debt, and until 2032, the hybrids market.

The Betashares Australian Bank Senior Floating Rate Bond ETF (ASX: QPON) – Tracks the value of high-value, intermediate maturity bonds (at least $500 million outstanding and maturity dates of between 1 to 5 years). It has a current running yield of 5.18% p.a. (as at 10 March 2025) and an average credit rating of A+. This means the assets are investment grade and are at relatively low risk of default⁶.

The Betashares Australian Major Bank Subordinated Debt ETF (ASX: BSUB) – This fund invests in Tier 2 subordinated debt, as issued by the Big Four. Tier 2 means that these debt instruments rank lower than senior debt in the repayment hierarchy. Given this is a potential risk in the event of a bank default, they attract a higher yield than senior debt⁷. The running yield is 6.03% (as at 10 March 2025) and pays its income monthly.

The Betashares Australian Major Bank Hybrids Index ETF (ASX: BHYB) – Tracks a portfolio of listed hybrid securities issued by Australia’s Big Four banks. Hybrid securities combine the bond-like promise of a consistent payment until maturity with equity-like return features⁸. The current net running yield on this product is 5.12% (as at 10 March 2025). But, as mentioned, the hybrids market is being wound down by APRA. You can read more about the changes here.

Knowing how to yield is strength

Now, you have six investment ideas for generating a solid and consistent income. While the banks and the big miners have paid out fantastic dividends in the past, now might be the time to get smarter about your income investing strategy. Broadening your horizons to include global stocks, hybrids or even an active ETF can help you take advantage of what would otherwise be an environment marked by more conservative payouts.