2 High-Yield Dividend ETFs to Buy to Generate Passive Income

Both of these ETFs boast double-digit yields and pay on a monthly basis.

| More on:
ETF stands for Exchange Traded Fund

Source: Getty Images

High-yield dividend stocks can often be a red flag, signalling potential financial trouble for the company. However, when it comes to high-yield exchange-traded funds (ETFs), the situation is a little different. Why? It’s about financial engineering.

ETFs can use strategies like covered call options and leverage—or even a combination of the two—to significantly boost their yields. This allows them to maintain high payouts without the same level of risk you might see with individual high-yield stocks.

Pair these strategies with monthly distributions, and certain high-yield ETFs become excellent tools for generating passive income. They’re especially appealing when held in a Tax-Free Savings Account (TFSA). Here are two high-yield dividend ETFs from Hamilton ETFs that I think are worth considering.

HYLD and HDIV

The dynamic duo are Hamilton Enhanced U.S. Covered Call ETF (TSX:HYLD) and Hamilton Enhanced Multi-Sector Covered Call ETF (TSX:HDIV).

Both ETFs share several similarities. They are funds of funds, meaning they hold a diverse portfolio of other Hamilton-covered call ETFs as opposed to stocks directly.

Covered call ETFs use a strategy where call options are written against part of the portfolio’s holdings. This approach trades some upside potential for immediate income, making it an effective way to generate above-average yields.

While this strategy may limit share price growth in bull markets, it produces steady monthly income—a feature particularly attractive to those prioritizing income generation over capital appreciation.

Both HYLD and HDIV also use leverage. By borrowing cash on margin, they achieve 1.25 times (25%) leverage. This boosts the yield and returns, but it’s important to understand that it also increases risk. Leverage works both ways, enhancing gains in strong markets but magnifying losses in down markets.

Here’s where the two ETFs differ:

  • HDIV holds ETFs designed to mimic the S&P/TSX 60, focusing on Canadian equities.
  • HYLD holds ETFs designed to mimic the S&P 500, focusing on U.S. equities.

As of November 20, HDIV offers an 11.8% yield, while HYLD provides a higher 12.63% yield. Keep in mind that these yields can fluctuate based on market conditions, so it’s a good idea to stay updated.

How to generate $500 in monthly passive income

Assuming HYLD’s most recent November 7th monthly distribution of $0.143 per share and the current share price at the time of writing of $14.11 remained consistent moving forward, an investor looking for $500 of monthly income would need to buy this much HYLD:

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
HYLD$14.113,496$0.143$499.93Monthly

3,496 shares of HYLD at its current price of $14.11 per share works out to an investment of $49,328.56

Assuming HDIV’s most recent November 7th monthly distribution of $0.171 per share and the current share price at the time of writing of $17.95 remained consistent moving forward, an investor looking for $500 of monthly income would need to buy this much HDIV:

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
HDIV$17.952,924$0.171$500Monthly

2,924 shares of HDIV at its current price of $17.95 per share works out to an investment of $52,485.80.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

rain rolls off a protective umbrella in a rainstorm
Dividend Stocks

Buy These Canadian Dividend Stocks for Safe Monthly Income

Do you want to earn some steady monthly income? These three REITs are a good bet if you want safe,…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

Got $7,000? 4 Quality Stocks to Buy and Hold Forever in a TFSA

These four Canadian stocks are some of the best businesses you can buy, making them ideal long-term investments for your…

Read more »

Piggy bank and Canadian coins
Dividend Stocks

How to Use Your TFSA to Earn $227 Per Month in Tax-Free Income

These TSX dividend stocks offer high yields and monthly payouts. These stocks can help you earn over $227 in tax-free…

Read more »

man shops in a drugstore
Dividend Stocks

Got $3,500? 5 Consumer Stocks to Buy and Hold Forever

Five consumer staple stocks are suitable long-term holdings for their defensive qualities.

Read more »

coins jump into piggy bank
Dividend Stocks

Don’t Watch Your Savings Shrink: 2 Dividend Stocks to Help Pay the Bills

Canadians can protect their savings by investing in high-quality dividend stocks that pay out "sufficient high" but safe dividends.

Read more »

dividends can compound over time
Dividend Stocks

TFSA: 4 Canadian Stocks to Buy and Hold Forever

These four top TFSA stocks not only pay dividends but also offer strong long-term upside potential.

Read more »

Hourglass and stock price chart
Dividend Stocks

Outlook for Nutrien Stock in 2025

Nutrien stock has gone through a rough patch, but that could mean there is value to be found.

Read more »

Hourglass projecting a dollar sign as shadow
Dividend Stocks

2 Affordable TSX Stocks That Pay Monthly Dividends

Two affordable, high-yield TSX stocks pay consistent monthly dividends.

Read more »