When it comes to generating passive income in your portfolio, many investors often look for some of the highest-yielding stocks first. And while a high-yield stock can certainly be compelling for many dividend investors, high-yield ETFs can offer even more advantages.
The key is finding high-yield stocks or ETFs that are still reliable and high-quality. The level of the yield doesn’t matter if the dividend is unsustainable anyway.
And when you do find investments that can consistently generate cash flow every month or quarter, it gives you real flexibility, such as the ability to reinvest those distributions to compound faster, or just build a bigger cash position ahead of the next market pullback and buying opportunity.
Furthermore, when you buy a high-yield ETF over a single stock, it can help make investing even easier and more reliable. In fact, one of the biggest advantages of ETFs is that they spread risk across dozens or hundreds of holdings, which significantly lowers the risk for investors.
Plus, in addition to that instant diversification, the funds are also managed by a professional management team, meaning you can skip the hassle of picking stocks yourself and constantly keeping up to date with them.
That’s why high-quality dividend ETFs are some of the best tools for passive income seekers. They deliver steady payouts from dozens, if not hundreds, of different businesses while keeping volatility lower than that of individual stocks.
So, with that in mind, if you’re looking for a high-yield investment to add to your portfolio today, here’s why the BMO Canadian High Dividend Covered Call ETF (TSX: ZWC) is one of the best options to consider.
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The ZWC ETF offers exposure to high-quality companies with instant diversification
The biggest advantage any ETF offers is the instant diversification you get from a single fund. However, that diversification is arguably even more important for dividend investors looking for a reliable high yield.
The more high-quality stocks you gain exposure to that contribute to the dividend, the safer and more reliable that dividend becomes.
The fund holds a portfolio of high-quality Canadian companies that offer significant and sustainable yields in some of the most defensive industries on the TSX.
For example, Financials make up roughly 40% of the fund, with other major sectors like utilities, energy, and telecoms combining to account for more than 75% of the total fund.
What’s common about all of these sectors is that they all contain highly defensive businesses that generate predictable cash flows even when the economy weakens.
The covered call strategy boosts the yield significantly
Although the high-quality dividend stocks that the ZWC owns make up a significant portion of its high yield, what really pushes it higher is the covered call strategy that it uses.
A covered call means the ETF takes some of the stocks it owns and sells someone the right to buy them at a set price in the future. In exchange, it collects an upfront premium from the buyer. Those premiums add extra cash flow on top of the regular dividends from the stocks. That’s why the ETF can pay out such a significant dividend yield.
It’s worth noting, though, that the distributions can fluctuate slightly over time based on option premiums and market conditions. However, over the long haul, the strategy has delivered consistent high income over time. In addition, it’s also worth noting that the trade-off of this higher yield is that some of your capital gains potential may be capped, especially if stocks rally rapidly in the near term.
If the underlying stocks the fund sold options on surge above the call strike prices, some shares might get called away, which is what limits some of your gains.
However, in a sideways market or one that grows slowly and steadily, like we’re likely to see in 2026, the extra premium income often outweighs any capped capital appreciation.
That’s why if you’re looking for a high-yield investment to buy now, the ZWC ETF is undoubtedly one of the top choices on the TSX.
