Three High-Yield Dividend ETFs for Passive Income

Exchange-traded funds (ETFs) are solid choices for investors looking to create streams of passive income. These funds typically contain a collection of income-generating investments, allowing you to enjoy the profits without the hassle of actively managing individual stocks. Just sit back and let the earnings flow into your brokerage account.

The Schwab U.S. Dividend Equity ETF (SCHD), JPMorgan Equity Premium Income ETF (JEPI), and Vanguard Real Estate ETF (VNQ) are three commendable ETFs for generating passive income. These ETFs provide higher dividends that have shown consistent growth over the years.

A Focus on Top Dividend Stocks

The Schwab U.S. Dividend Equity ETF tracks the Dow Jones U.S. Dividend 100 Index, which aims to reflect the performance of 100 high-yielding stocks known for consistently paying dividends and exhibiting stronger financial metrics compared to others.

This fund boasts a portfolio filled with companies that have excellent dividend-paying histories. For instance, Pfizer, the fund's top holding, has recently declared its 345th consecutive quarterly dividend, boosting its dividend yield to an impressive 6.5%. Many of the fund's other principal holdings also provide substantial dividends, having increased their payouts consistently for over a decade.

Currently, the fund offers an attractive distribution yield of 3.6%, which is about three times greater than the S&P 500's yield of 1.2%. Given the fund's focus on stocks with a history of increasing dividends, the income stream is expected to continue rising.

Monthly Income with Lower Risk

The JPMorgan Equity Premium Income ETF aims to deliver monthly income while offering lower-volatility exposure to the equity market. It adopts a two-part investment strategy:

• Defensive equity portfolio: The ETF's managers curate a portfolio of stocks based on thorough fundamental research and proprietary risk-adjusted rankings.
• Options overlay strategy: The fund writes out-of-the-money call options on the S&P 500 index to generate income each month. These options are set above the current index level. The ETF earns a premium for writing these options.

Writing options can be a lucrative income-generating technique. The fund has currently achieved an income yield of around 8% based on its recent payments (7.5% over the past year). This yield is considerably higher than many other asset classes. The monthly distributions can vary based on the premium income generated from options, which tends to be higher during more volatile market periods. Moreover, this fund also provides exposure to equities, which can lead to higher overall returns compared to traditional fixed-income investments like bonds.

Simple Real Estate Investment

Real estate can be a promising avenue for generating passive income, but some strategies require significant time commitment (like managing rental properties) and can involve high initial investments.

The Vanguard Real Estate ETF represents one of the easiest and most hands-off methods to earn income from real estate. This fund primarily invests in real estate investment trusts (REITs) that manage income-generating properties such as office spaces, apartment complexes, and warehouses. With over 150 REITs in its portfolio, it offers investors extensive exposure to the commercial real estate sector.

The leading REIT in its holdings is Prologis, a prominent industrial REIT with a current dividend yield of 3.5%. Prologis has grown its dividend by an impressive 13% compound annual rate over the previous five years, significantly outpacing the S&P 500, which has seen growth of about 5%.

The ETF currently has a yield of 3.5%, and as REITs like Prologis continue to increase their dividends, this stream of income is expected to rise in the future.

Great Options for Enhanced Income

ETFs provide a fantastic means to generate passive income by holding diverse portfolios of income-producing investments. The Schwab U.S. Dividend Equity ETF, JPMorgan Equity Premium Income ETF, and Vanguard Real Estate ETF stand out as top choices due to their higher-yielding income streams, which are likely to grow. They are excellent options to consider if you are looking to begin generating passive income now.

Disclaimer: The writer has positions in JPMorgan Equity Premium Income ETF and Prologis. The article does not constitute investment advice.

dividend, ETFs, passive