3 Dividend ETFs to Maximize Passive Income

Dividend exchange-traded funds (ETFs) combine the steady passive income stream of dividend stocks with the ease of a fund managed by a third party provider, giving investors the best of two different worlds. For investors interested in dividend-paying companies, targeting individual names can sometimes necessitate keeping an eye on dividend yield, payout ratio, and other metrics which indicate the long-term viability of continued dividend payments. ETFs focused on dividend companies, on the other hand, can take a lot of this work out of the picture.

Investors are drawn to ETFs in part as well because of their low cost. While this is true for many ETFs, it is not always the case, and indeed some of the leading dividend funds have higher expense ratios than many other exchange-traded vehicles. Nonetheless, the potential passive income these funds provide may far outweigh the relatively high fees they carry. Here are three red-hot dividend (or dividend-like) ETFs to consider for 2025.

Amplify High Income ETF: Unique Access to Closed-End Funds

The Amplify High Income ETF YYY is a unique ETF in that its portfolio consists of roughly 60 closed-end funds, meaning that it in fact does not target traditional dividend stocks at all. Closed-end funds are investment companies that offer a one-time sale of a specified number of shares and then use the capital for investment purposes.

One of YYY's strengths is that many investors are unaware of closed-end funds or otherwise reluctant to focus on them. YYY achieves a broadly diversified pool of closed-end funds in its portfolio by evaluating these vehicles based on yield, discount to net asset value, and liquidity.

The result is that YYY is a powerful monthly income generator. As of January 31, 2025, it enjoys a distribution rate of 12.13%. Even given a total expense ratio of 3.25%, generally quite a bit higher than most other ETFs, investors may find this fund to be a compelling prospect given its distribution and specialty focus.

Invesco KBW High Dividend Yield Financial ETF: Targeted Focus on Dividend-Paying Financial Institutions

Another dividend fund with a unique focus is the Invesco KBW High Divided Yield Financial ETF KBWD. This ETF focuses on U.S.-based, publicly listed financial companies with competitive dividend yields, making it one of the few dividend plays to provide exposure to dividend-paying banks as a group. Though KBWD is a multi-cap fund it is predominantly focused on small-cap stocks because of its underlying index, which uses a modified dividend yield-weighted methodology to identify targets.

KBWD's expense ratio of 2.02% is also higher than many other ETFs available today. However, it also enjoys a tremendously high dividend yield of 11.99% as of February 11, 2025. Still, investors should keep in mind that KBWD carries a fairly substantial risk as a result of its focus on smaller financial institutions that may not be as stable as their larger peers. The fund has a narrow focus and fills a very particular niche, but for investors interested in maximizing dividend yield with a special interest in the financials sector, and who possess sufficient risk tolerance to take on the bet, KBWD can be a worthwhile option to consider.

First Trust Nasdaq BuyWrite Income ETF: Income Through Options

The First Trust Nasdaq BuyWrite Income ETF FTQI is another fund generating income in a somewhat unorthodox way. FTQI writes U.S. exchange-traded covered call options on the Nasdaq-100 Index and then generates cash flow through premiums on those options. The fund makes monthly distributions of those options premiums to shareholders.

FTQI's approach has been successful—it generates an effective dividend yield of 11.53% as of February 11, 2025. The majority of the securities it targets with its options strategy are in the information technology and communication services sectors, both of which are highly popular among investors and likely to see strong demand among options traders.

FTQI's strategy also enables it to provide traditional returns as well. In the year leading to February 11, 2025 it has returned nearly 17%. While this is below the S&P 500 over the same period, it is an added bonus on top of the income generated through options premiums. Notably also, the fund has an expense ratio of just 0.75%, making it the most affordable of the ETFs on this list.

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