For conservative income investors, all roads led to cash products in 2024.
With some term-deposit rates paying 5% for introductory offers, it was a no brainer investing in government-guaranteed bank deposits.
In 2025, income investing could be a different story. Not dramatically so, but enough to pay attention to other income-generating strategies to help maintain yield, amid the cost-of-living crisis.
Start with interest rates. Economists mostly tip the first interest rate cut in Australia in February 2025. I expect the first cut to be later – in the second quarter of 2025 as inflation remains higher for longer than the market expects.
Whatever happens, rates are heading lower next year to counter Australia’s slowing economy. That means lower rates on term deposits. For cash investors, now is as good as it gets, at least in this interest-rate cycle.
A slowdown in shares buybacks, which involve companies repurchasing their shares from the market or directly from shareholders, is also likely next year. Buybacks are an important way to return value to shareholders.
Moreover, the Australian Prudential Regulation Authority’s (ARPA) announcement that hybrids will be phased out by 2032 is another blow for income investors. Bank hybrids were popular with for their higher yield.
Arguably the biggest risk for income investors next year is Australia’s slowing economy and the risk of weaker earnings growth. That means less capital returned to shareholders in the form of dividend growth.
To be clear, I’m not suggesting a big fall in the 12-month return on the S&P/ASX 200 Index – about 4.2% before franking to end-August 2024, S&P data shows. Nor do I expect a big fall in term deposit rates. Changes will be gradual and modest.
That said, every basis point matters in this market, especially for income investors who live off their portfolio return and face sharply higher living costs.
It’s a good time to think about the impact of falling interest rates on portfolio yields and what that means for income returns next year. And whether investors will have to move a little higher up the risk curve to maintain their required income return.
As readers know, I favour Listed Investment Companies (LICs) for dividend yield. The LIC’s company structure means it can use its retained earnings to smooth dividend payments over several years and manage franking credits.
Moreover, many LICs trade at an unusually large discount to the Net Tangible Assets (NTA) because the sector is out of favour. In theory, buying an LIC at a discount to NTA means owning its assets for less than their market value.
Some LICs, of course, trade at a persistently large discount due to poor underling investment returns. Others have a patchy dividend record.
For all their income attractions, the risk of an LIC trading at large discount to its underlying value can be a turn-off for some income investors.
With that in mind, investors could look to Exchange Traded Funds for income. The obvious place is ETFs over large-cap Australian equities or those that use rules (smart-beta ETFs) or active management (active ETFs) to enhance income.
I’m looking at a less-considered source of income: global equities. Australian investors typically favour local shares for income due to franking credits and because our companies tend to pay higher dividends than their US peers.
But the case to consider global equities for yield is strengthening. With the US Federal Reserve this week expected to cut rates for the first time in 2020, the US economy will be well ahead of our economy in terms of its rate cycle.
With US rates falling this year, US corporate earnings and dividend growth could have more momentum. As our rates stay higher for longer – possibly longer than the market expects – local dividend growth could be sluggish.
Here are two yield-focused ETFs over global equities to consider:
- SPDR S&P Global Dividend Fund (ASX: WDIV)
WDIV tracks the return of the S&P Global Dividend Aristocrats Index in Australian dollars. That index measures the performance of high dividend yielding companies that have had increasing or stable dividends for at least 10 years.
I like that index methodology. Conversative income investors should focus on companies with stable or rising dividends over long periods: not stocks with the best dividend yields, which is often a dividend trap in disguise.
The 95 stocks in the index had an average weighted dividend yield of 5.2% as of this week. WDIV’s total return was 13.56% over one year to end-August 2024.
By country, about a quarter of WDIV is invested in US equities. By sector, almost a quarter is invested in financial stocks.
WDIV’s average Price Earnings (PE) ratio is a modest 12.6 times, and its average Price-to-Book ratio is 1.3 times. WDIV holds a portfolio of reasonably valued companies with steady dividend growth over long periods.
WDIV won’t star, but a 13.5% total return – assuming that level of return continues in the next few years – from a portfolio of conservative dividend payers, appeals.
WDIV’s annual management fee is 0.35%. From a technical (charting) perspective, WDIV has recently broken out of its trading range over the past few years.
Chart 1: SPDR S&P Global Dividend Fund (ASX: WDIV)

Source: Google Finance
- Global X S&P 500 High Yield Low Volatility ETF (ASX: ZYUS)
For investors who seek concentrated US exposure, ZYUS tracks an index that comprises 50 of the highest-yielding securities in the S&P 500.
ZYUS screens for US equities that potentially deliver less volatile returns compared to the S&P 500 index. Like WDIV, ZYUS seeks to identify companies with a more stable return profile compared to the index average.
ZYUS’s total return of almost 19% over one year to end-July 2024 compares to a 26% return for the S&P 500 in that period. Investors who favoured lower-volatility securities through ZYUS sacrificed some total return from US equities.
Still, I doubt that Australia income investors would be too perturbed by a 19% total return over one year, at least in absolute terms.
Of the two ETFs in this article, ZYUS has the higher risk profile. Its portfolio is more concentrated than WDIV’s. Also, ZYU’s trailing 12-month yield is lower (3.59% versus 5.2%); and it trades on a higher average PE (21.7 times versus 12.6 times).
Of the two ETFs, WDIV suits more conservative investors who seek higher yield from a diversified portfolio of global equities with good dividend records.
ZYUS is more appropriate for investors who want a mix of income and capital growth, and who have a higher risk profile. I prefer WDIV.
ZYUS’s management fee is 0.35%.
Chart 2: Global X S&P 500 High Yield Low Volatility ETF

Source: Google Finance
Tony Featherstone is a former managing editor of BRW, Shares and Personal Investor magazines. The information in this article should not be considered personal advice. It has been prepared without considering your objectives, financial situation or needs. Before acting on information in this article consider its appropriateness and accuracy, regarding your objectives, financial situation and needs. Do further research of your own and/or seek personal financial advice from a licensed adviser before making any financial or investment decisions based on this article. All prices and analysis at 18 September 2024.