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

These two dividend ETFs both yield over 3.5% and feature monthly payouts.

| More on:
exchange traded funds

Image source: Getty Images

The Canadian stock market is already known for its above-average dividends. For example, the benchmark S&P/TSX 60 Index currently has a 3% trailing 12-month yield as of March 11.

But if you want more income, the easiest way is to buy a dividend exchange-traded fund (ETF) that focuses on high-yield stocks. Here’s a look at two longstanding ETFs that both pay monthly and yield more than the S&P/TSX 60.

S&P/TSX Composite High Dividend Index

The first option is the S&P/TSX Composite High Dividend Index, which serves as a higher-yielding counterpart to the broader S&P/TSX Composite.

This index specifically screens for 75 higher-yielding companies, which naturally tilts it more heavily toward financials and energy stocks—two of Canada’s most dominant dividend-paying sectors.

You can get exposure to this index by investing in iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI).

XEI is relatively affordable, with a 0.22% expense ratio, and currently offers a 5.49% trailing 12-month yield, paid out monthly.

S&P/TSX Canadian Dividend Aristocrats Index

If you’re comfortable with a slightly lower yield in exchange for higher share price appreciation, an alternative is S&P/TSX Canadian Dividend Aristocrats Index.

This index selects Canadian stocks that have increased their dividends for at least five consecutive years, ensuring a focus on consistent dividend growers rather than just high yield.

You can track this index through iShares S&P/TSX Canadian Dividend Aristocrats Index ETF (TSX:CDZ).

CDZ comes with a higher 0.66% expense ratio and a lower 3.77% trailing 12-month yield, but historically, it has outperformed XEI in total return, making it a solid option for investors who want both dividend growth and capital appreciation.

The Foolish takeaway

There’s a smart way to own both XEI and CDZ so you can benefit from both high-yield and dividend-growth strategies

For instance, you could prioritize XEI in your Tax-Free Savings Account, where you can withdraw those high monthly dividends tax-free whenever you need them.

Meanwhile, CDZ fits well in a Registered Retirement Savings Plan, where you can reinvest its steadily growing dividends and let them compound into a sizable nest egg for retirement.

By using both ETFs strategically, you can maximize income now while also building long-term wealth for the future.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Investing

Asset Management
Tech Stocks

Missing Out Is Costly: Why the Smartest Investors Keep Buying Canadian Stocks

Smart investors know that success in the stock market comes from identifying high-quality businesses and holding them for a long…

Read more »

A person looks at data on a screen
Energy Stocks

Enbridge Stock vs. Cameco: Which One Is a Better Buy on the Dip?

Consider Enbridge (TSX:ENB) and another great momentum play to energize your TFSA.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

TFSA: 3 Top-Tier TSX Stocks for That $7,000 Contribution

The market is full of great long-term stock to fuel your TFSA. Here’s a look at three top-tier TSX stocks…

Read more »

man touches brain to show a good idea
Energy Stocks

Trump Tariffs: Are Canadian Energy Stocks Still a Safe Haven for Investors?

Amid Trump’s tariffs, can Canadian energy stocks still shelter your portfolio? Let's identify the risks and opportunities.

Read more »

A plant grows from coins.
Dividend Stocks

3 Top Growth Stocks to Buy for March

These three growth stocks might be excellent holdings to add to your self-directed portfolio this month.

Read more »

grow money, wealth build
Energy Stocks

Down 30% From Highs: Is This TSX Growth Stock a Screaming Buy?

This TSX stock may be down now, but don't count it out. With plenty of growth opportunities already underway, now…

Read more »

dividends can compound over time
Dividend Stocks

Sell-Off Opportunity: Why This Beaten-Down Canadian Stock Could Rebound

Nutrien stock might be down now, but long-term investors will certainly reap some major rewards.

Read more »

dividends grow over time
Investing

Here Are My Top 3 TSX Stocks to Buy Right Now

These stocks have solid growth prospects. Moreover, the recent pullback makes them compelling near current price levels.

Read more »