To generate years of passive income, you could either build a portfolio of individual dividend stocks or simply invest in a dividend exchange-traded fund (ETF). An ETF allows you to buy several stocks at a time without the hassle of managing a portfolio. Buying some units of a high-yield dividend ETF, for instance, can fetch you regular dividends from a basket of stocks and earn you a high yield, without your having to research and invest in individual stocks.
If the concept appeals to you as an income investor, check out these three fantastic high-yield dividend ETFs to buy now. Each of these ETFs yields substantially higher than the S&P 500's (SNPINDEX: ^GSPC) yield of 1.3%.
Invest in top dividend growth stocks with this ETF
The Schwab U.S. Dividend Equity ETF(NYSEMKT: SCHD) is undeniably one of the best high-yield dividend ETFs you could buy. That's because it tracks the Dow Jones U.S. Dividend 100 index, which doesn't include just high-yielding stocks but focuses on 100 consistent dividend-paying stocks with the financial fortitude to back their steady and often growing dividends.
The Schwab U.S. Dividend Equity ETF's top 10 holdings, for example, include Dividend Kings, like Coca-Cola(NYSE: KO) and Abbvie(NYSE: ABBV), and top dividend stocks like Chevron(NYSE: CVX). Coca-Cola stock, yielding 2.8%, has paid a dividend for 103 consecutive years and increased it yearly for the past 62 consecutive years. The beverage giant has 30 billion-dollar brands, some of which were acquired over the past decade and have contributed substantially to its free-cash-flow (FCF) growth.
Likewise, the 3.3%-yielding Abbvie stock has increased its dividend payout for 52 consecutive years, including when it was part of Abbott Laboratories. Abbvie's biggest strength is its research and development. For instance, despite losing U.S. patent exclusivity for its top drug, Humira, the pharmaceutical giant foresees high-single-digit revenue growth through 2029, driven by Humira's successors.
Chevron is another rock-solid dividend-paying stock. Yielding 4.4%, the oil and gas giant has increased dividends for 37 consecutive years despite the volatility in commodity prices. Chevron is now expanding production and betting big on its $53 billion impending acquisition of Hess (currently embroiled in an arbitration challenge). Even without Hess, Chevron expects to grow its average annual FCF by more than 10%.
This motley mix of dividend growth stocks has generated massive returns for shareholders of this ETF.
The Schwab U.S. Dividend Equity ETF is also one of the most well-diversified ETFs, with double-digit exposures to key sectors like healthcare, financials, consumer staples, energy, and industrials. It yields 3.6% and has an expense ratio of only 0.06%, making it an incredible high-yield dividend ETF to buy and hold.
An intriguing dividend ETF with a massive yield
Given the JPMorgan Equity Premium Income ETF's (NYSEMKT: JEPI) hefty yield of 7.3%, you'd expect the ETF to invest only in some of the highest dividend stocks. That, however, is far from the truth, and that's what makes this one such an intriguing dividend ETF.
The JPMorgan Equity Premium Income ETF is different from a typical dividend ETF. It invests at least 80% in stocks from the U.S., primarily large caps from the S&P 500 index, and 20% in equity-linked notes (ELNs) that sell call options with exposure to the S&P 500 index.
So, while the 80% investment in stocks provides a steady flow of dividends, the 20% investment in ELNs reduces volatility and allows the fund to pay monthly dividends from the recurring cash flows received from premiums on the call options. Eventually, for shareholders, buying shares of the JPMorgan Equity Premium Income ETF means a steady flow of monthly income plus a high yield. It's a win-win.
Interestingly enough, this ETF owns more than 100 stocks from a variety of sectors and industries, with no special focus on dividends. Its top holdings, for example, include Visa, Mastercard, Amazon, and Meta Platforms. Amazon doesn't even pay a dividend, and Meta declared its first dividend in 2024. Visa and Mastercard, on the other hand, are top dividend-paying companies with high operating margins and a strong track record of dividend hikes.
ELNs, therefore, are a crucial part of the JPMorgan Equity Premium Income ETF's strategy to generate income and offer a high yield. They're also why this ETF may perform better during market volatility. The potential low-volatility monthly dividends and high yield make it an attractive dividend ETF to buy for passive income.
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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. John Mackey, former CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Neha Chamaria has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends AbbVie, Abbott Laboratories, Amazon, Chevron, Mastercard, Meta Platforms, and Visa. The Motley Fool has a disclosure policy.
