Investors who are looking to build steady passive income have a variety of options to consider. One of those options is investing in a monthly income ETF. These funds offer regular cash flow, some diversification, and generally a more hands-off approach over picking a portfolio of stocks.
One monthly income ETF that fits that description well is Hamilton Enhanced U.S. Covered Call ETF (TSX:HYLD). The ETF offers a double-digit yield that puts it above traditional dividend stocks and broad-market ETFs.
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Why this stands out as a monthly income ETF
One of the main reasons why the ETF stands out is its income. As of the time of writing, Hamilton Enhanced U.S. Covered Call offers a monthly distribution with a yield of 11.3%. That puts it above most of the traditional high-yield options on the market.
The other key consideration is the payout schedule. Monthly payers like this ETF offer investors an opportunity to generate an income stream that can be used to cover regular bills or reinvested on a more frequent schedule.
You don’t really get that smooth income stream on a quarterly payout.
That’s the core objective of this monthly income ETF – generating a high level of income that uses an enhanced covered call strategy comprised of U.S.-focused ETFs.
What investors get with this covered call ETF
The ETF gives investors exposure to a basket of covered call ETFs focused on the U.S. market. Covered call strategies are designed to generate income by selling call options against holdings in the portfolio.
That makes the fund more of an ETF income tool than a traditional growth-focused index fund.
Option income can help support those higher distributions, which is why covered call ETFs like Hamilton Enhanced U.S. Covered Call can offer much higher yields than traditional index ETFs.
The trade-off is that covered call strategies can limit upside when markets rise sharply. Investors may receive more income along the way, but they won’t capture all the gains that a traditional equity ETF delivers in a strong market.
That’s not necessarily a problem, especially when the goal is to generate frequent cash flow, as in this monthly income ETF.
How the Hamilton Enhanced U.S. Covered Call fits in an income portfolio
This monthly income ETF appeals to investors looking to turn part of their portfolio into a regular income stream. That includes investors who are either retired or will be soon. It also includes those who prefer cash flow over waiting for capital gains.
To put that earnings potential into context, consider a $20,000 investment in the ETF (always as part of a larger, well-diversified portfolio).
For that initial deposit, investors can expect to generate over $2,200 each year. That’s just shy of $190 each month.
Keep in mind that prospective investors who aren’t ready to draw on that income yet can choose to reinvest it, allowing that payout to continue growing.
This makes the monthly income ETF appealing to those still building their portfolios, as well as to income-seekers.
Are you buying HYLD for income?
The Hamilton Enhanced U.S. Covered Call is not your average, boring ETF. It’s a monthly income ETF that pays out a yield in the double-digits.
That fact alone makes it stand out for Canadian passive income investors. This makes the ETF a great addition to any larger, well-diversified portfolio.
