3 High-Yield Dividend ETFs to Buy to Generate Passive Income

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These exchange-traded funds should keep the income flowing in regularly.

Passive often isn’t viewed as a positive quality. When used to describe an individual, it implies the person sits back and lets things happen to them — frequently bad things.

But passive income is a different story altogether. An investor with great sources of passive income sits back and lets good things happen, namely allowing money to flow in regularly.

What are some great sources of passive income? I think exchange-traded funds (ETFs) are a smart place to look. Here are three high-yield dividend ETFs to buy to generate passive income (listed alphabetically).

1. Investco S&P SmallCap High Dividend Low Volatility ETF

The Invesco S&P SmallCap High Dividend Low Volatility ETF (XSHD -0.84%) managed by Invesco pays a sky-high 30-day SEC yield of 7.72%. This yield, by the way, reflects the net investment income per share less expenses over the previous 30 days divided by the current maximum offering price. The U.S. Securities and Exchange Commission (SEC) developed it as a way for investors to compare funds.

As the ETF’s name hints, it focuses on small-cap stocks with high dividend yields but relatively low volatility over the past 12 months. The Invesco ETF owns 57 stocks. Its top holdings include Highwoods Properties, Organon, Armour Residential REIT, Two Harbors Investment Corp, and Ellington Financial.

Income investors will probably like that the Investco S&P SmallCap High Dividend Low Volatility ETF pays distributions monthly. They might also like the fund’s manageable annual expense ratio of 0.3%.

What’s not to like? Despite generating great income, the fund hasn’t performed very well historically. Since its inception in December 2016, this Investco ETF’s average annual return is -1.17%.

2. JPMorgan Equity Premium Income ETF

The JPMorgan Equity Premium Income ETF (JEPI 0.43%) managed by JPMorgan Chase isn’t too far behind the Invest ETF in generating passive income. This fund’s 30-day SEC yield stood at 7.55% as of May 31, 2024.

This ETF uses a proprietary process to select stocks with less volatility that may or may not pay dividends. It sells out-of-the-money S&P 500 index call options to generate income. Like the Investco ETF, the JPMorgan ETF makes monthly distributions.

The JPMorgan Equity Premium Income ETF currently owns 133 stocks. Its top holdings include Microsoft), Amazon, Progressive, Meta Platforms, and Trane Technologies.

This ETF has an annual expense ratio of 0.35%. Its performance has been strong with an average annual return of 12.57% since its inception in May 2020. Arguably the main knock against the JPMorgan Equity Premium Income ETF is that it hasn’t been around very long.

3. SPDR Portfolio S&P 500 High Dividend ETF

The SPDR Portfolio S&P 500 High Dividend ETF (SPYD -0.25%) is managed by State Street. It offers a 30-day SEC yield of 4.68%.

Its name gives away the ETF’s focus. The SPDR ETF invests in stocks in the S&P 500 index with high dividend yields. The fund owns 75 stocks with top holdings including Iron Mountain, Public Service Enterprise Group, Williams Companies, International Paper, and Hasbro.

One big plus for this ETF is its low cost. The fund’s annual expense ratio is only 0.07%. The SPDR ETF has also performed relatively well historically with an average annual return of nearly 8.6% since its inception in October 2015.

Unlike the Invesco and JPMorgan ETFs, the SPDR Portfolio S&P 500 High Dividend ETF pays distributions quarterly instead of monthly. However, the combination of the fund’s juicy yield, low cost, and track record of positive returns could make it a good pick for investors seeking passive income.

Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to Meta Platforms CEO Mark Zuckerberg, is a member of The Motley Fool’s board of directors. JPMorgan Chase is an advertising partner of The Ascent, a Motley Fool company. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool’s board of directors. Keith Speights has positions in Amazon, JPMorgan Equity Premium Income ETF, Meta Platforms, and Williams Companies. The Motley Fool has positions in and recommends Amazon, Iron Mountain, JPMorgan Chase, and Meta Platforms. The Motley Fool recommends Hasbro and Progressive. The Motley Fool has a disclosure policy.