A vanilla dividend ETF – one that simply holds a portfolio of dividend-paying stocks – will typically yield around 3% to 5%.
REITs might push that range higher, up to 5% to 8%, though anything higher often signals distress. Meanwhile, mortgage investment corporations and similar alternatives can offer yields above 8%, but those come with significant risks.
However, some ETFs are specifically designed for passive income generation. These funds use more advanced strategies, such as covered calls and leverage, to deliver double-digit yields.
If you’re looking for high monthly income, here are two standout picks from Hamilton ETFs that have become popular with passive income investors.
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S&P/TSX 60 with a higher yield
First up is the Hamilton Enhanced Multi-Sector Covered Call ETF (TSX: HDIV).
This ETF holds a diversified portfolio of other Hamilton-covered call ETFs, giving you access to various sectors in a single package.
These sectors include utilities, gold producers, Canadian financials, technology, energy, healthcare, and REITs, among others. It’s designed to mimic the composition of the S&P/TSX 60 index.
Most of the underlying ETFs in HDIV employ covered call strategies, which sacrifice some upside price appreciation to deliver higher immediate income.
To enhance this income further, HDIV takes things a step further by using leverage. At the fund level, it can borrow up to 25% of its assets, providing 1.3 times exposure to its holdings. This amplifies returns and yield but also increases risk.
Currently, HDIV pays a robust 11.8% distribution yield as of January 17, making it an attractive option for those looking to generate passive income.
S&P 500 with a higher yield
The Hamilton Enhanced U.S. Covered Call ETF (TSX: HYLD) is the U.S.-centric counterpart to HDIV.
Its portfolio includes broad U.S. equity exposure along with sectors like technology, U.S. financials, healthcare, energy, gold producers, and REITs.
Compared to HDIV, HYLD has a heavier allocation to U.S. technology stocks, reflecting the S&P 500‘s sector dominance, and no exposure to Canadian financials.
Similar to HDIV, HYLD generates high income by holding covered call ETFs that sacrifice some upside price appreciation in exchange for immediate income. To amplify its returns and yield, HYLD also employs 1.3 times leverage, making it a more aggressive option for income-focused investors.
As of January 17, HYLD offers a 12.5% yield, making it an attractive option for those seeking income with a focus on U.S. markets.
