Take the Invesco US High Yield Fallen Angels (LSE:FAHY), iShares EM Dividend (LSE:SEDY), and iShares World Equity High Income (LSE:WINC) funds. Want to know what makes them top funds to consider in an ISA for dividend income?

Bond power

One problem with investing in shares is that dividends are never, ever guaranteed. Invesco US High Yield Fallen Angels takes this problem out of the equation. How? By focusing on generating income from corporate bonds.

This isn’t a completely risk-free strategy, however. And especially as this fund focuses on below-investment-grade bonds that yield greater levels of income. However, the portfolio’s structured in a way as to reduce the risk of default on investor returns.

In total, the ETF holds 71 different bonds, and no single holding makes up more than 5.2% of the fund. This significantly spreads out risk.

Based on a 6.6% dividend yield, an £5,000 investment here could yield a £330 passive income this year.

What about equity funds?

The iShares EM Dividend ETF focuses — as its name implies — on generating income from emerging market shares. More specifically, it holds shares in 100 companies with the highest dividend yields. These range from Brazil and China, to South Africa and the Czech Republic.

The advantage? The fund has the potential to deliver stunning long-term capital growth along with reliable and large dividends. Be mindful, though, that its focus on development markets can lead to greater share price volatility at times.

That said, with exposure to a number of different industries, the likelihood and scale of such volatility is greatly reduced. Holdings include healthcare, telecoms, consumer staples, and real estate companies.

A £5,000 lump sum investment here might provide £255 in dividends this year, reflecting the fund’s current 5.1% yield.

Double-digit dividend yields

iShares World Equity High Income offers the highest dividend yield of these three top funds. It also offers the best diversification, in my view, which can improve an investor’s chances of a reliable income.

Like the iShares EM Dividend ETF, this fund offers exposure to a multitude of industries including information technology, financial services, healthcare, and telecoms. But that’s not all — the 468 dividend payers it holds are located across global stock markets, providing better geographical diversification.

This iShares fund has another trick up its sleeve, too. It also holds cash and US Treasuries. This boosts dividend visibility and reduces the chances of it sinking in value if broader stock markets fall.

Taking into account the ETF’s 10.1% dividend yield, £5,000 invested here could provide a £505 income this year.

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NewRiver REIT (LSE:NRR) and iShares World Equity High Income ETF (LSE:WINC) both have excellent records of paying reliable and growing dividends. What’s more, recent stock market volatility has supercharged their forward dividend yields close to 10%.

Here’s why they could be two of the best dividend stocks for ISA investors to consider this April.

Flowing dividends

Like many other property stocks, NewRiver REIT’s shares have dropped as oil prices have soared. If interest rates climb to curb inflation, the company’s borrowing costs will rise and asset values will take a hit, impacting earnings.

I think this drop represents an attractive dip buying opportunity. At 70p, the real estate investment trust (REIT) trades at a whopping discount per share of 105p relative to its net asset value (NAV). It also carries a bulky 9.8% dividend yield for this financial year (to March 2027).

NewRiver has its tenants locked down on long contracts, with a weighted average lease expiry of 8.6 years as of September. This means it can expect stable rental income even if the UK economy struggles, giving it better dividend prospects than many other UK shares.

There’s another advantage to buying NewRiver REIT shares for dividends. In exchange for corporation tax breaks, at least 90% of annual profits must be paid out in dividends. This provides shareholders with an added layer of visibility by limiting management decisions on capital distribution.

Around a quarter of the company’s portfolio comprises retail parks, a fast-growing sector. However, I’m not as taken by the less stable shopping centre assets that make up the remainder. Yet, given that enormous yield and massive discount to NAV, I think NewRiver is worth a close look.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

Strength through diversification

Like most shares-based funds, the iShares World Equity High Income ETF has slumped in value in recent weeks. If the Middle East war drags on, it could well continue sinking

Still, I expect this exchange-traded fund (ETF) to recover strongly over time. After all, the long-term direction of global stock markets has always been up. And in the meantime, investors can expect the fund to keep delivering juicy dividends. For 2026, the dividend yield here is also 9.8%.

So what’s its secret? As this name implies, this ETF invests holds shares in high-yield global shares, roughly 470 in total. This spreads out the impact of possible dividend volatility among a handful of stocks, allowing it to still deliver market-beating payouts to shareholders.

But here’s the cool part: with substantial cash holdings and government bonds too, it can deliver a more stable second income than just stocks-based ETFs. Given this extra trick up its sleeve, I think it’s a top passive income share to consider for the new ISA period.

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Naturally, opinions will differ on what constitutes a ‘decent’ income in retirement. But I believe Pensions UK research is a good starting point — this implies a single person needs £43,900 a year (excluding tax) to retire in comfort.

That works out at roughly £3,658 a month. So how large would your SIPP have to be to generate that?

Tax questions

Unlike with a Stocks and Shares ISA, SIPP investors need to consider tax costs when calculating future passive income. While shielding holders from capital gains and dividend taxes, they don’t provide protection from income tax on withdrawals.

This doesn’t make them unattractive investment products, mind. The tax relief (which ranges from 20% to 45%) on contributions can — when factoring in the compounding benefits over time — supercharge the size of one’s pot to more than offset tax costs.

But payments to HMRC nonetheless need to be factored into the equation. Investors can take 25% as a tax-free lump sum, with the remainder charged depending on one’s tax band.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice. Readers are responsible for carrying out their own due diligence and for obtaining professional advice before making any investment decisions.

SIPP size

Taking into account all of this, someone seeking a £43,900 annual (or £3,658 monthly) net income would need a gross SIPP income of £62,718 a year.

But how large would our investor’s portfolio need to be to generate this sum? It depends on what they plan to do with it — withdrawing a set percentage each year, purchasing an annuity, or buying dividend shares are all popular strategies.

My own plan is to invest in dividend-paying shares yielding around 7%. If someone seeking a £62,718 income before tax took this route, they’d need a SIPP worth £896,000.

Conquering the world

But investors need to take care when buying dividend stocks with especially high yields. Unusually large cash payouts can signal financial instability or unsustainable distributions.

It’s therefore important to build a diversified portfolio of (perhaps 15 or more) stocks to reduce risk and deliver a stable income. It’s also critical to find companies with strengths like competitive advantages, multiple revenue streams, and healthy balance sheets.

Funds like the iShares World Equity High Income ETF (LSE:WINC) can be great short cuts to achieving this. With holdings in 370 companies, returns are well protected from weaknesses in one or two regions or industries.

This in turn can provide a large and reliable dividend over time. What’s more, significant cash holdings and investment in government bonds provides additional stability for income investors.

A focus on stocks leaves the fund sensitive to broader stock market movements. While risky on one hand, it also allows the fund to harness the long-term growth potential of equity investing. It’s risen 7% in value since launch in March 2024.

With a 9.6% forward dividend yield, it’s the sort of fund I think could deliver an exceptional SIPP income.

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The FTSE 100 cash machine

Today Phoenix Group (LSE:PHNX) has the fourth-highest dividend yield on the FTSE 100. At 7.9%, its yield is only topped by those of Taylor Wimpey, WPP, and Legal & General.

But unlike those first two blue chips, Phoenix’s yield hasn’t been supercharged by extreme share price weakness. The financial services giant has a long record of paying a large and growing dividend, and its yields have long topped the blue-chip average.

This in part reflects its exceptional cash generation, even during tough times. Today, its Solvency Capital Coverage Ratio is 172%, well inside its 140%-180% target. It may not protect Phoenix’s share price from falling if economic conditions worsen. But it at least means the company looks in good shape to pay this year’s expected dividends.

Over the longer term, I expect dividends here to rise steadily as demographic changes drive retirement product demand and push its profits skywards.

A discounted trust

FTSE 250-listed SDCL Energy Efficiency Trust (LSE:SEIT) offers tantalising all-round value in my book. Its forward dividend yield is 10.8%, more than triple the Footsie average of 3.3%.

The investment trust also trades at a whopping 36.8% discount to its net asset value (NAV) per share of 91.5p.

Higher interest rates have weighed heavily on SDCL’s performance of late. With inflation edging upwards again, this is a threat that remains in play.

Yet I’m still confident in the trust’s long-term potential. It invests in projects that reduce heat wastage, improve on-site power generation, and cool commercial buildings, for example. And as such, it has considerable growth potential as companies try to meet their green targets.

On the dividend front, SDCL has raised shareholder payouts at an average rate of 4.8% over the last five years.

The global ETF

Launched in March 2024, the iShares World Equity High Income ETF (LSE:WINC) doesn’t have a long record of annual growth. But it’s tipped to raise the annual payout again this year, resulting in a vast 9.6% dividend yield.

The fund is designed “to generate income and capital growth with lower volatility than developed market equities“. To achieve a more stable performance than 100% share-based ETFs, some of its capital is also tied up in cash and government bonds.

That’s not to say that the fund’s fully protected from choppiness, however. Weighty exposure to cyclical sectors like information technology and financial services leaves it exposed to economic downturns.

However, it aims to counterbalance these with holdings of defensive shares like utilities, healthcare, telecoms, and consumer goods shares. As an investor, it’s also worth remembering iShares World Equity’s large contingent of high-growth shares (like Nvidia and Apple) also create potential for robust long-term dividend growth.

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Here’s an example of what a well-diversified portfolio might look like:

In total, these investment trusts and exchange-traded funds (ETFs) provide exposure to more than 450 different companies. These span a multitude of regions and sectors, reducing concentration risk and helping to provide a more stable return across the economic cycle.

What’s more, they have enormous dividend yields, as the table shows. To give you an example of the passive income they can throw off, a £20,000 lump sum invested across them could provide a £2,000 dividend income this year alone. I’m also confident they can grow dividends over time.

Here’s why I think they’re worth considering today.

Top fund

Tech stocks aren’t famed for their enormous dividend potential. But the Global X Nasdaq 100 Covered Call ETF works by purchasing Nasdaq shares and selling covered calls on them, redistributing the income to the fund’s shareholders.

This fund provides an added bonus to its holders: it pays monthly distributions, giving investors access to their cash earlier. It can thus be a useful tool for accelerating compounding by shortening intervals between reinvestments. Monthly distributions here have been paid for the last 11 years.

One downside is that there’s limited price appreciation potential, because any price growth above strike prices is forfeited. This can put it at a disadvantage to standard Nasdaq tracker funds. But for dividend hunters, this may be a price worth paying.

Dividend trust

As its name implies, the Chelverton UK Dividend Trust is focused on generating income from British equities. This geographical strategy carries greater concentration risk than more global funds. But given the London stock market’s strong dividend culture, it also has its advantages.

It’s also important to note that, on balance, this trust is still well diversified despite its UK focus. It invests in a range of industries like financial services, consumer goods, energy, and mining.

Furthermore, its capital is evenly distributed, further reducing the threat of individual shocks on overall returns. Hargreaves Services is currently its single largest holding, at 3.5%.

Global leader

To my mind, the iShares World Equity High Income fund offers a brilliant blend of safety and exciting income potential.

Unlike the other high-yield trusts and ETFs I’ve described, its holdings aren’t confined to specific territories. In total, it holds shares in roughly 300 global equities spanning financial services, information technology, telecoms, healthcare, and consumer goods.

This broad range protects investors from nasty localised shocks. But this is not all — its two largest single holdings are cash and US Treasuries, accounting for 6.3% and 5.7% of the portfolio respectively. This provides an added layer of robustness.

The lion’s share of its capital is stashed in the equity market, though. And so it is still highly exposed to stock market movements. But given the long-term resilience of global shares, I believe it’s a top dividend stock to consider.

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Take the following London-listed assets, for instance:

• The Renewables Infrastructure Group (LSE:TRIG), whose forward dividend yield’s 8.3%.
• iShares World Equity High Income ETF (LSE:WINC), which delivers a 9.8% corresponding yield.
• Phoenix Group (LSE:PHNX), whose forward yield’s 8.3%.

Each of these yields is more than double the FTSE 100 average of 3.4%. And if broker forecasts are accurate, a £10,000 lump sum invested equally across them will yield an £880 passive income in 2025, and probably (in my opinion) a growing one beyond this year.

Here’s why each dividend share has significant long-term income potential and maybe worth considering.

The trust

The Renewables Infrastructure Group’s stock’s plummeted in popularity in the last half decade (down 33%). The threat of enduring high interest rates and changing global green energy policy has dampened investor confidence.

This remains a risk going forward. However, the subsequent fall in sector share prices leaves attractive value, in my book. The Group boasts that enormous 8%+ dividend yield. At 88.8p, it also trades at a 20.7% discount to its net asset value (NAV) per share.

I like this particular share given its relatively low risk profile versus many sector rivals. Its assets are dotted across Europe, where policy towards renewable energy remains highly favourable. And they span multiple countries and technologies — namely wind, solar and battery storage — which reduces reliance in one area to drive profits.

I think the trust retains huge long-term investment potential as the climate emergency worsens.

The fund

The iShares World Equity High Income ETF offers a lucrative passive income and the beauty of diversification. With holdings in 313 dividend-paying shares, it can absorb individual shocks at group level and still deliver healthy returns.

The companies it holds span the whole of North America, Europe and Japan, and the portfolio includes market leaders across multiple industries — the list includes including Nvidia, Pfizer, Morgan Stanley and Pepsico. In addition, its holdings include US Treasuries and cash, giving the fund additional robustness.

Over time, I’m optimistic that the income shares it owns will deliver robust returns. But with high exposure to cyclical sectors like technology, financial services and industrials, it may also deliver disappointing capital gains during economic downturns.

The FTSE 100 share

The Footsie’s surge to record peaks means few income stocks now have yields north of 8%. Phoenix is one that’s retained this special status.

Persistent inflation and weak economic growth remain a danger to the financial services giant. While this threatens profits in the near term, City analysts don’t believe this will impact its progressive dividend policy — shareholder payouts have risen each year since 2018.

This reflects Phoenix’s excellent cash generation and balance sheet, which allowed dividends to keep growing even when the pandemic clobbered earnings. Today its Solvency II capital ratio is 172%, well above its target range of 140-180%.

I expect it to remain an impressive FTSE 100 dividend payer, as its protection and pensions markets rapidly expand and drive cash flows.

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I think the following mini-portfolio — offering exposure to a total of 346 companies — could be a great way to target a large, reliable and growing second income over time. Here’s why I think they’re worth serious consideration.

The dividend stock

FTSE 100 company M&G‘s (LSE:MNG) been lifting dividends consistently since it was spun off from Prudential in 2019. Though profits have been up and down due to rising interest rates and weak economic growth, payouts have kept rising thanks to the firm’s robust balance sheet.

With a Solvency II ratio of 223%, it looks in good shape to keep this record going.

Recent share price strength has pulled its dividend yield away from double-digit percentage territory. But at 8.1%, it still packs the third-largest yield on the Footsie today.

This is also more than double the blue-chip index’s broader average of 3.4%.

M&G’s share price could reverse if economic conditions worsen. But the long-term outlook here is robust, in my opinion, as an ageing population drives demand for its investment and retirement products.

The ETF

At 8.8%, the forward yield on the iShares World Equity High Income ETF (LSE:WINC) also leaves the FTSE 100’s corresponding average in the dust. And with holdings in 344 different companies, it’s capital allocation effectively protects investor returns if a handful of shares deliver disappointing dividends.

As the chart above shows, this fund invests in a wide range of sectors, reducing risk and providing a smooth return across the economic cycle. It also holds money in US goverment bonds and cash for added robustness.

What’s more, as its name implies, the product invests in shares from across the globe, including the US (67.8% of the portfolio), Japan (6.9%), France (2.9%) and the UK (2.2%).

This high weighting of US shares could impact performance if investors rotate away from North America. But I think it balances risk and return pretty effectively.

The investment trust

Primary Health Properties (LSE:PHP) is a real estate investment trust (REIT) which can make it ideal for dividend income. Sector rules dictate that a minimum of 90% of annual rental profits must be paid out in cash to investors.

This REIT has specifically proven one of the best dividend-paying REITs in recent decades. Shareholder rewards have risen each year since the mid-1990s.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

It’s a record that also reflects its supreme earnings stability. By renting out primary healthcare facilities, it benefits from an ultra-defensive sector where around 90% of rents are funded by government bodies.

Higher interest rates have weighed on Primary Health’s share price in recent years. While this remains a risk, signs of falling inflation suggests better times could be ahead.

The dividend yield here is a big 7%.

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Spreading risk over a number of investments doesn’t mean settling for inferior returns either. Take the following shares, investment trusts and exchange-traded funds (ETFs), for example:

As you can see, the dividend yield on each of these stocks comfortably beats the FTSE 100 average (currently around 3.4%). It means a £10,000 investment spread equally across them could — if broker forecasts are accurate — provide an £870 passive income over the next year alone.

What’s more, a portfolio containing just these three stocks would provide (in my view) exceptional diversification. In total, these investments deliver exposure to 346 different companies spanning multiple sectors and global regions.

Here’s why I think they’re worth serious consideration today.

The investment trust

Real estate investment trust (REIT) Target Healthcare’s set up to deliver a steady stream of dividends to shareholders. These entities must pay at least 90% of annual earnings out this way in exchange for juicy tax breaks.

By focusing on the care home sector — it owns 94 in total — this trust has exceptional long-term potential as the UK’s elderly population booms. It also benefits from the sector’s highly stable nature, while inflation-linked leases boost earnings visibility still further.

Be mindful though, that labour shortages in the nursing industry could dent future returns.

Please note that tax treatment depends on the individual circumstances of each client and may be subject to change in future. The content in this article is provided for information purposes only. It is not intended to be, neither does it constitute, any form of tax advice.

The ETF

The iShares World Equity High Income ETF is focused primarily on high-yield and dividend growth stocks. In total, it holds 344 different businesses around the globe, from tech giants Nvidia and Microsoft to insurers like Axa, telecoms such as Deutsche Telekom and banks such as JPMorgan.

However, it also earns income from safe havens like cash and US Treasuries, which provides strength during economic downturns.

The fund’s focused primarily on US shares. In total, these account for 67.8% of total holdings. I don’t think this is overly excessive, but bear in mind that this could impact the fund’s growth potential if sentiment towards US assets more broadly cools.

The share

Phoenix Group, like Legal & General and M&G, is a highly cash-generative financial services provider. And so like those other businesses, it offers one of the three highest forward dividend yields on the FTSE 100 today.

In fact, Phoenix has a sound track record of beating its cash generation forecasts and providing subsequent meaty windfalls to shareholders. During 2024, total cash generation was expected at £1.4bn-£1.5bn. In the end it came in at a whopping £1.8bn!

Like Target Healthcare, I believe it’s well-placed to capitalise on Britain’s growing older population. I’m optimistic demand for its savings and retirement products will grow steadily.

On the downside, this year’s predicted dividend is covered just 1.1 times by expected earnings. However, a Solvency II ratio of 172% could give it scope to meet analysts’ dividend forecasts, even if this year’s profits disappoint.

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Investing in an exchange-traded fund (ETF) can greatly reduce the impact of such eventualities on an individual’s overall returns. By holding a wide variety of dividend-paying shares, these funds spread risk and can offer a more consistent dividend even if some companies held in the fund falter.

With this in mind, here are three great dividend-focused ETFs to consider today. As you can see, their forward dividend yields beat the FTSE 100 average of 3.7% by a comfortable margin.

Continental colossus

The WisdomTree Europe Equity Income UCITS ETF (LSE:EEI) holds shares in 255 businesses in the UK and on Mainland Europe. For this financial year its dividend yield is a meaty 6.6%.

This high yield can be explained partly by the large proportion (around 21% of the total fund) of British shares that it holds. Largely speaking, companies on these shores have a stronger culture of paying large and growing dividends than their continental counterparts.

Less than a third of its capital is tied up in its 10 largest holdings (which include banking giant HSBC, utilities operator Enel, and energy producer TotalEnergies), and its exposure extends across a wide variety of sectors.

Returns may disappoint in the event of a eurozone-wide slowdown. But on balance, I think it’s a well diversified ETF to consider.

Dividend angel

The Invesco US High Yield Fallen Angels ETF (LSE:FAHY) doesn’t invest in equities. Instead, it focuses on corporate bonds that are below investment-grade status.

More specifically, it’s designed to track “the performance of ‘fallen angels’ — bonds which were previously rated investment-grade, but were subsequently downgraded to high-yield“.

Some 97.5% of its portfolio is dedicated to instruments with an investment rating of BB or below. This creates greater danger for investors, but it also results in a sky-high dividend yield. The forward dividend yield here is a robust 7%.

Some of the ETF’s largest holdings include bonds from healthcare provider CVS Health, aluminium producer Alcoa, and chemicals manufacturer OCI Global. In total, its portfolio comprises 74 different holdings, providing investor returns with protection against one or two possible defaults.

World beater

As its name implies, the iShares World Equity High Income UCITS ETF (LSE:WINC) is loaded with yield-rich companies from across the globe. Consequently, its forward dividend yield is an enormous 9.1%, putting it in the top seven highest-yielding ETFs currently available in the UK.

In total, the product holds shares in 328 different businesses from across the globe. This broad geographic footprint can help it absorb localised problems better than funds that are focused on certain regions.

What’s more, this iShares ETF holds non-equity assets like US government-backed securities and cash. It’s a strategy that provides even greater stability over time.

It’s also worth noting the fund’s high exposure to technology shares like Microsoft, Nvidia, and Meta. While such shares can be more volatile across the economic cycle, they also have significant growth potential.

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As we saw during Covid-19, even companies with rock-solid business models and strong balance sheets can cut, cancel, or postpone dividends at a moment’s notice.

Share pickers can reduce this threat by having exposure to a diversified selection of dividend-paying shares. An investor who has a large wad of cash can spread that across multiple shares instead of parking it all in a single choice.

Diversification doesn’t mean investors need to settle for sub-par returns either. Indeed, if current broker forecasts prove accurate, a £15k lump sum invested equally on these two shares would provide £1,350 in dividends in 2025 alone.

There’s good reason to believe these stocks are worthy of further research as they could provide an excellent long-term passive income too.

Phoenix Group

Dividend yield: 10.4%

Today, Phoenix Group‘s (LSE:PHNX) the only FTSE 100 share with a double-digit dividend yield. But unlike many ultra-high-yielding shares, I think predicted dividends here look pretty secure.

You see, as a major life insurance provider and asset manager, it collects vast amounts of cash via policy premiums and management fees that it can distributes by way of dividends.

It generated £950m of cash in the first six months of 2024 and is on course to achieve cash generation of £4.4bn in the three years to 2026. With a Solvency II capital ratio of 168%, it has a good buffer to at least meet this year’s predicted dividends should earnings come in on the low side.

There’s a danger Phoenix’s share price could fall if interest rates remain at current levels, hitting overall shareholder returns. But rising long-term demand for financial planning services — combined with its cash-rich balance sheet — still makes it worth close attention among patient investors, in my book.

The Footsie firm’s heavyweight brands SunLife and Standard Life give it added strength to capitalise on this rapidly growing market too.

Risk reducer

Dividend yield: 7.6%

A lump sum investment in the iShares World Equity High Income UCITS ETF (LSE:WINC) is an effective way that investors can diversify their portfolios while still only directly holding only one or two shares.

As an exchange-traded fund (ETF), it’s designed to hold a basket of different assets and thus spread risk. In this case, the fund — which was created in March 2024 — focuses on 276 dividend-paying stocks from across the globe.

What’s more, these equities span a multitude of sectors including information technology, financial services, healthcare, telecoms and consumer goods.

On the downside, a chunky 71% of the fund is invested in US companies. As a consequence, it may be more vulnerable to a regional downturn than a more globally diversified fund.

Yet on the other hand, its large portfolio of US shares also provides enormous opportunities, like the growing digital economy (through the likes of Nvidia) and rising global healthcare spending (tapped through Novartis shares).

Its 7%-plus dividend yield’s one of the largest among all UK-listed ETFs. I think it could prove to be a brilliant buy to consider for long-term passive income.

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