There’s no question that dividend investing is one of the best ways to build long-term wealth. High-quality dividend stocks don’t just pay you regular income; they’re also some of the most reliable investments you can own over time. And when you buy high-yield dividend ETFs you get all the benefits of these stocks in addition to natural diversification.
Picking individual dividend stocks offers plenty of benefits. However, it also takes a lot of time and research to not only understand what you’re buying but to ensure you’re diversifying your investments well.
That’s why high-quality dividend ETFs are some of the best investments you can buy. They help solve many of these issues by offering instant diversification, lower risk, and less work. You get exposure to a bunch of strong, income-generating companies all in one simple investment.
Therefore, if your goal is to earn steady, passive income, dividend ETFs are one of the easiest ways to do it. And with the right ones, you can generate significant passive income to boost your portfolio’s long-term growth.
So, with that in mind, here are two high-yield dividend ETFs that are perfect for generating passive income.
One of the best high-yield dividend ETFs on the TSX
If you’re looking to boost your passive income by owning high-quality, high-yield dividend ETFs, one of the best to consider is the iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI).
The XEI ETF holds a mix of high-quality, dividend-paying companies from across the TSX, including banks, energy stocks, telecoms, and utilities.
For example, its three top holdings are Toronto-Dominion Bank, Suncor Energy, and Enbridge, which are three of the largest and best long-term stocks in Canada.
The fund is designed to focus on income first. It doesn’t try to chase growth or time the market. It simply owns reliable companies that pay solid dividends, then passes that income onto investors.
Furthermore, because it’s well-diversified and made up of some of the most stable businesses in the country, it’s a strong choice for long-term investors. And with a current yield of roughly 5.4% and a management expense ratio of just 0.22%, it offers an attractive balance of income and dependability.
So, if your goal is to generate passive income with a reliable and diversified high-yield dividend ETF, XEI is a name worth seriously considering.
A unique fund offering a yield of more than 6.6%
In addition to the XEI ETF, another high-quality, high-yield dividend ETF to consider adding to your portfolio is the BMO Canadian High Dividend Covered Call ETF (TSX:ZWC)
The ZWC ETF is built specifically to generate significant passive income for investors. Just like the XEI, it holds a bunch of high-yield Canadian dividend stocks. However, the main difference is that the ZWC ETF uses a covered call strategy.
Basically, the ZWC ETF sells call options on the stocks it owns. That means it collects cash upfront from other investors who are betting those stocks will rise.
So, if the stocks in its portfolio stay flat or only rally slightly, the fund keeps the premium and still owns the stock. And that extra income from the premiums it collects is what helps boost the yield, which is why it’s one of the best high-yield dividend ETFs that investors can buy.
However, it also means that if stock prices rally significantly, the fund might have to sell them at a pre-set price, missing out on some of the potential capital gains.
So essentially, the fund prioritizes higher passive income generation by sacrificing some of its potential capital gains, which may not be ideal for investors who are looking for growth, but makes it a solid pick if you’re focused on boosting the passive income your portfolio generates.
And because it owns high-quality Canadian stocks, many of its holdings are similar to the XEI ETF.
However, with its covered call strategy it offers a slightly higher yield at 6.6% (with a management expense ratio of 0.72%) compared to the yield the XEI ETF offers of 5.4%.
So, if you’re looking for high-yield dividend ETFs that can offer instant diversification and significant passive income, the ZWC ETF is one of the best to consider.
