If your goal is to generate outsized passive income with a diversified, relatively hands-off approach, high-yield dividend-focused ETFs can be excellent building blocks. These funds combine broad exposure to income-producing assets with strategies designed to boost cash flow, making them attractive for long-term income investors — especially within tax-advantaged accounts like a TFSA.

1) BMO Covered Call Canadian Banks ETF (TSX: ZWB)
ZWB is an ETF that pairs exposure to major Canadian banks with a covered-call options strategy to enhance yield. Covered calls generate option premium income that gets passed on to holders, resulting in higher monthly or quarterly distributions than you would see from owning the underlying banks outright. Because Canadian banks are dividend stalwarts with strong capital positions, this ETF combines both income and financial sector strength while smoothing out volatility through option income.

2) iShares S&P/TSX Composite High Dividend Index ETF (TSX: XEI)
XEI holds a diversified basket of Canadian dividend-paying stocks across several sectors, including energy, financials, utilities, and consumer staples. By targeting companies with established payout histories, this ETF delivers steady quarterly income while reducing single-stock risk. Its yield tends to be higher than broad market funds, and the diversification helps weather economic cycles better than a concentrated portfolio.

3) Horizons Enhanced Income Equity ETF (TSX: HEXI)
HEXI is structured specifically for income seekers, employing an options overlay strategy on a broad equity base to boost distributions — often paying monthly. While strategies like covered calls can cap some upside in strong bull markets, they deliver stable, enhanced income, making HEXI appealing if your priority is regular cash flow over price performance.

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Why These ETFs Work for Passive Income

Diversification: Each fund spreads income exposure across multiple issuers or sectors, reducing reliance on a single stock’s dividend.
Enhanced Yield Strategies: Covered-call or options overlays boost income beyond traditional dividend payouts alone.
Tax Advantage in TFSA: In tax-advantaged accounts, all distributions and gains are tax-free, compounding your income more efficiently.

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If you want a core income-producing ETF lineup in 2026 that balances yield, diversification and practical execution, these three stand out as favoured choices for building a passive income engine without constant tinkering.