Exchange-traded funds (ETFs) are a great way for investors to diversify their dividend portfolio. The market for these funds has grown rapidly over the last decade, providing ISA investors with passive income opportunities by:

• Individual dividend stocks (i.e. high yielding companies or dividend growers).
• Specific sectors (such as financial services, healthcare or real estate).
• Certain regions (such as UK or US equities or emerging market equities).
• Various asset classes (including stocks, bonds and real estate).

Do you have £20,000 to invest in a stocks and shares ISA? I think so iShares MSCI Target UK Property (LSE:UKRE) i X SuperDividend Global ETF (LSE:SDIP) is an excellent fund worth considering. Based on current projections, a lump sum of this size spread equally would generate £1,615 dividends only this year, tax-free.

Please note that tax treatment depends on each client’s individual situation and may change in the future. The content of this article is for informational purposes only. It is not intended to be and does not constitute any form of tax advice.

7% dividend rate!

The iShares MSCI Target UK Real Estate ETF generates income by holding a range of real estate investment trusts (REITs). These companies collect rents and distribute most of their earnings to shareholders. Under REIT rules, at least 90% of annual rental profits must be distributed. This is in exchange for tax breaks.

This particular fund brings together a total of 25 real estate companies operating in a variety of sectors, including self-storage, logistics, data centers and student accommodation. This helps ensure stable income throughout the economic cycle.

Returns may be disappointing if interest rates boost? This is possible because higher borrowing costs reduce rental earnings. However, the fund’s diversified approach and REIT dividend policies mean I’m confident it will be able to continue to pay powerful dividends.

It’s not the only defensive tool in his arsenal. Currently, over 40% of ETF funds are also invested in British government bonds. They lend a hand the fund pay predictable income even if there are problems with occupancy or rent collection on its properties.

The forward dividend yield here is around 7%. This is more than twice right FTSE100 average (3.1%).

The next best ETF to consider?

The Global X SuperDividend ETF offers a more international flavor, as its name suggests. However, this is not the only advantage it offers from a diversification point of view.

The fund invests in “up to 100 companies from around the world paying the highest dividends“However, they are not circumscribed to one sector – in fact, they are well diversified across many industries, including financial services, energy, real estate, consumer goods and healthcare.

What I like about it is that it also provides the opportunity for better long-term capital growth than funds that focus solely on defensive sectors. However, keep in mind that this can also cause the company’s share price to be more exposed during a market downturn.

Coming back to dividends, Global X’s yield this year is a massive 9.1%. My research shows that it is currently the fifth highest paying ETF in the UK.

Should you invest £5,000 in Global X Etfs Icav – Global X Superdividend Ucits ETF now?

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Mark believes there are 6 standout stocks that investors should consider buying right now. Want to see if Global X Etfs Icav – Global X Superdividend Ucits ETF made the list?

Royston Wild holds no position in the companies mentioned.