If you’re building a passive-income strategy for 2026 and beyond, certain ETFs stand out because they combine higher distributions with diversified exposure — letting you generate regular cash flow without having to pick individual stocks. Instead of chasing income in volatile single names, these ETFs offer a one-stop approach that simplifies yield generation.
1) iShares S&P/TSX Composite High Dividend Index ETF (TSX: XEI)
This ETF tracks a broad basket of Canadian dividend-paying stocks across sectors like financials, energy and utilities. Because it focuses on companies with established dividend histories, XEI delivers a meaningful yield while spreading risk across many issuers. It’s a good choice if you want steady quarterly income with diversified sector exposure and lower concentration risk.
2) Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX: VDY)
Like XEI, VDY holds a diversified mix of high-dividend Canadian equities, but with slightly different weighting criteria and a very low cost structure. Its portfolio tilts toward big, stable dividend payers, making it attractive for investors who prioritize yield plus long-term capital preservation. Over time, reinvested dividends can compound significantly, especially when held inside a tax-advantaged account like a TFSA or RRSP.
3) BMO Covered Call Canadian Banks ETF (TSX: ZWB)
For those seeking income from a covered-call strategy, ZWB pairs exposure to major Canadian bank stocks with an options overlay designed to enhance yield. Covered calls generate option premiums that are passed on to investors as distributions, potentially boosting income beyond what dividends alone would produce. This strategy works well when markets are sideways or mildly bullish, as it provides income without relying solely on price appreciation.
4) Horizons Enhanced Income Equity ETF (TSX: HEXI)
HEXI is designed specifically for income-oriented investors. It uses an options strategy on a diversified equity base to generate monthly cash flow, aiming for regular payouts that can help budget for living expenses or reinvestment plans. The trade-off is that options strategies can cap upside in strong bull markets, but for many income investors that’s acceptable if it means more predictable yields.
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Why These ETFs Work for Passive Income
Rather than chasing the highest single yield, these funds emphasize diversification and sustainable distributions — which reduces risk and avoids reliance on any one company’s ability to pay. Many also hold assets essential to the Canadian economy, like banks and utilities, which tend to be steadier during market fluctuations.
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For long-term passive income inside tax-advantaged accounts, these high-yield ETFs can be strong building blocks in a diversified income portfolio heading into 2026.
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