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.

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ETF stands for Exchange Traded Fund

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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.

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