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Dividend investment is a gift that keeps on giving, provided you invest in the right income-generating assets. Choosing the right one high quality dividend stocks and curing an income-generating portfolio is not something everyone can do. It involves a significant degree of risk, even with the most seemingly reliable investments.
Exchange traded funds (ETFs) are investment instruments that can alleviate this pressure. These funds are baskets of securities managed by professionals on your behalf. These funds seek to give you return on investment by either passively replicating the performance of a particular market index or through an actively managed portfolio that matches a specific mandate from the fund manager.
If you want to create a dividend income portfolio and you prefer a more hands-free approach, TSX boasts several dividend ETFs that you could consider investing in to achieve your goals. While these funds may come with higher management fees than passively managed funds, they also offer juicy dividends that could more than cover the costs.
Today I will discuss two such high-yield dividend ETFs you could consider buying today.
BMO Covered Call Utilities ETF (TSX: ZWU) is a high-yield ETF that seeks to give you return on investment based on the performance of high-yield utilities, telecommunications companies, pipelines and other sectors that consist of high-yield stocks. The fund manager uses a covered strategy to increase its return, potentially giving you higher passive income than many reliable dividend stocks.
The covered call strategy results in a significant return of 7.44%. Assuming you invest enough funds over the years in ZWU ETF shares, you can set yourself up for a significant passive income just through the dividend payments.
BMO S & P / TSX Equal Weight Banks ETF (TSX: ZEB) is the perfect fund to consider if you want to gain exposure to the Canadian banking sector. The ZEB ETF does not use a covered strategy to improve its return, which means a lower return than the ZWU ETF. At the time of writing, BMO ZEB is offering ETF shareholder dividends at a decent dividend of 3%.
The lack of a covered strategy can mean lower shareholder returns. However, its approach means that its potential capital gains are higher than you could get if the fund manager used a covered call strategy. Covered calls can increase dividend income, but limit growth. The ZEB ETF could be a better addition to your portfolio if you want to get dividend income along with capital gains.
Investing in a portfolio of dividend shares is a great way to create a passive income stream that can grow your wealth and give you reliable long-term returns. However, you need to keep track of the assets you have and rebalance your portfolio to adapt to changing stock market conditions to stay in line with your goals.
Investing in dividend ETFs relieves you of the responsibility of managing a portfolio of securities yourself. It also gives you exposure to the performance of a wider range of securities than you could own in a self-managed portfolio.
If you’re looking for a hands-off method to generate decent dividend income, the ZWU ETF and ZEB ETF can be viable additions to your portfolio.
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