Would you rather have your exchange-traded fund (ETF) grow 10% in price or pay you 10% a year in dividends? If taxes aren’t a concern, you shouldn’t care too much—both contribute to your total return.
But the truth is, you rarely get both. Most high-yield ETFs don’t leave a lot of room for capital appreciation, and most growth ETFs don’t pay much of anything in income.
But if your top priority is passive income and you’ve got a solid chunk of your portfolio inside a Tax-Free Savings Account (TFSA), then maximizing monthly cash flow can be a sound strategy. You can spend the payouts or reinvest them without the taxman taking a cut.
For that kind of setup, two options from Hamilton ETFs stand out as reliable, high-yield options with proven track records and current distribution yields over 10%.
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Hamilton Enhanced U.S. Covered Call ETF (HYLD)
Hamilton Enhanced U.S. Covered Call ETF (TSX: HYLD) is designed to provide exposure to the U.S. equity market, similar to what you’d get with an S&P 500 index fund.
That means broad sector representation. Think tech, healthcare, financials, consumer discretionary, and industrials. But instead of holding the S&P 500 directly, HYLD builds its portfolio from a selection of ETFs with active oversight.
Most of the underlying ETFs HYLD holds run covered call strategies. In plain terms, this means selling call options on a portion of their portfolios—typically between 30% and 50%.
These calls are written at the money, which generates more option premium (cash) but sacrifices future upside. In short, the strategy prioritizes generating income over capturing full market gains.
To further juice the returns, HYLD applies 25% leverage, meaning every $100 you invest gives you exposure to $125 worth of assets. The trade-off is that both your income and price volatility get magnified—on the way up and down. So, how much can you expect to earn?
At the time of writing, HYLD trades at $12.85 per share, with the latest monthly distribution at $0.1450. If you invested $10,000, you’d be able to buy roughly 778 shares. That would generate $112.81 per month, or about $1,353 annually, translating to a 13.53% distribution yield based on your initial investment.
Keep in mind that distributions and prices fluctuate. The yield is attractive, but the added leverage means you should be comfortable with more volatility than you’d see in a traditional dividend ETF.
Hamilton Enhanced Multi-Sector Covered Call ETF (HDIV)
Hamilton Enhanced Multi-Sector Covered Call ETF (TSX: HDIV) is a more Canadian-focused income ETF designed to offer diversified exposure across sectors similar to the S&P/TSX 60 Index.
That means a heavy emphasis on financials, energy, utilities, telecom, and industrials, which are the sectors that dominate the Canadian stock market. Instead of owning these stocks directly, HDIV holds a mix of Canadian-listed covered call ETFs.
These underlying funds run options strategies that sell at-the-money call options on roughly 30% to 50% of their portfolios. This generates steady income through option premiums but also caps the upside if markets rally. It’s an income-first strategy and works best when markets move sideways or with modest gains.
To enhance this further, HDIV employs 1.25 times leverage, meaning for every $100 invested, the fund controls $125 worth of underlying assets. This amplifies both income and volatility, so you’re getting more potential yield but also taking on more risk than with a standard covered call ETF.
At the time of writing, HDIV trades for $17.37 per share and paid a recent monthly distribution of $0.1720. A $10,000 investment would buy about 575 shares, which would generate $98.90 per month or about $1,186.80 annually. That works out to an 11.87% distribution yield based on your initial investment.
The yield is attractive, but like HYLD, you need to be comfortable with some added volatility due to the leverage and option strategy. If held in a TFSA, the income is tax-sheltered, which makes this ETF even more appealing for income-focused investors.
