One of the most important aspects of investing is ensuring that your money is adequately diversified in order to mitigate as much risk as possible. That’s why dividend exchange-traded funds (ETFs) are some of the best high-yield investments that passive-income investors can buy.
Not only does owning a portfolio of dozens of dividend stocks require a ton of work and research to keep up with, but often the highest-yielding stocks are also some of the riskiest.
And when you try to diversify your investments, you naturally lower your overall risk, but you also usually bring your average yield down as you add more stable companies that don’t pay as much.
That’s why one of the best options investors have is a reliable high-yield dividend ETF. This way, you gain exposure to a basket of stocks, limiting the research you need to do and increasing the diversification of your portfolio, while still offering you an attractive yield.
So, if you’re looking to boost your passive income with a top high-yield dividend ETF today, here’s why BMO Canadian High Dividend Covered Call ETF (TSX:ZWC), is one of the best to consider.
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Covered-call ETFs are top picks for dividend investors
ZWC ETF is one of the best high-yield dividend ETFs you can buy, both for the stocks it offers exposure to and the covered call strategy that it uses.
First off, the ETF invests in top-notch businesses that operate in essential industries such as banking, telecommunications, infrastructure, energy and utilities.
Some of the top stocks include Bank of Nova Scotia, Enbridge, Manulife, Canadian National Railway and many more. These are all the highest-quality and most reliable dividend growth stocks on the TSX.
However, on top of the high-quality businesses it offers exposure to, because it uses a covered call strategy, the dividend ETF typically offers an attractive yield, currently above 6%.
What is a covered call strategy, and why is it ideal?
In simple terms, a covered-call strategy is basically a way to earn extra income from stocks you already own. So, the ETF will sell call options on the stocks it owns in its portfolio. When it sells those options, it collects a cash premium, and that money gets paid out to investors as part of the ETF’s distributions. That’s why it can offer such a significant yield.
In exchange for that extra income, though, the dividend ETF gives up some of the capital gains potential if the stocks rally rapidly over a short period of time. That’s why these funds are so ideal for passive-income seekers.
However, the ZWC ETF isn’t just ideal because it offers a high yield; it’s actually one of the best investments to buy in this environment.
Right now, many of the top Canadian stocks are already trading near their 52-week highs, so an ETF that caps some upside isn’t much of a drawback. With valuations stretched, you’re not giving up huge rallies anyway, which makes the higher income from a covered-call approach a lot more appealing.
It’s worth noting that the ZWC charges a 0.72% management expense ratio. However, with a current yield of more than 6%, you’re still generating a roughly 5.3% return.
So, if you’re looking for a high-quality dividend stock or ETF to buy now, the ZWC is easily one of the top choices investors have today.
