Got $10,000? These ETFs Could Turn It Into Over $500 of Annual Passive Income.

Exchange-traded funds (ETFs) can be an ideal source of passive income. These professionally managed funds are hands-off investments you can buy and forget, making them as passive as they get.

There are many dividend ETFs to choose from if you want to make passive income. Here’s a look at a trio of top ETFs that could turn a $10,000 investment into more than $500 of annual passive income:

Data source: ETF websites.

A premium income stream

JPMorgan Equity Premium ETF aims to deliver monthly income to its investors and equity market exposure with less volatility. It has a two-fold strategy to deliver on that goal:

• Defensive equity portfolio: The fund’s managers select stocks based on fundamental research and a proprietary risk-adjusted rating system.
• Disciplined options overlay: The ETF writes out-of-the-money call options on the S&P 500 Index to generate options premium income, which it distributes to investors monthly.

The fund’s payments have equated to a nearly 6.9% yield over the past 30 days and 7.6% during the last 12 months. The payment fluctuates monthly based on the options premium income the ETF generates. That income tends to rise during more volatile periods because volatility increases options premiums. As a seller of options, it makes more money when premiums are high.

The fund also offers equity market exposure by holding a portfolio of high-quality stocks. The ETF has over 130 holdings (including options contracts) featuring notable companies like Nvidia, Amazon, and Mastercard among its top 10 holdings. The fund has a relatively low allocation to each stock (its top holding is only 1.6% of its net assets), meaning it has broad diversification. That helps reduce risk and lowers its overall volatility.

High-quality fixed income

The Vanguard Long-Term Bond ETF focuses on bonds issued by corporations and the U.S. government that have investment-grade credit ratings and won’t mature for over a decade. The fund holds over 3,100 bonds, split roughly evenly between those issued by the U.S. government and corporations, with an average remaining duration of nearly 14 years.

Investment-grade-rated bonds are high-quality fixed-income investments. They pay a fixed rate of interest, which provides holders with predictable income. The fund’s focus on high-quality bonds makes it an excellent income investment.

The bonds held by the fund currently have an average yield to maturity of 4.7%. Meanwhile, the fund yields around 5% based on its price and payment over the past 30 days. It pays investors monthly, which also enhances its appeal for those seeking passive income.

High-quality, high-yielding dividend stocks

Schwab U.S. Dividend Equity ETF has a straightforward mandate. The ETF tracks an index of 100 higher-yielding dividend stocks with a record of consistency, selected based on their financial strength compared to their peers. These companies typically increase their dividends steadily, adding to their passive income appeal.

Because the fund focuses on higher-yielding dividend stocks, it offers an attractive income yield. Its yield over the last 30 days is nearly 3.7%, while its payout over the trailing 12 months is almost 3.5%. That’s more than double the dividend yield of the S&P 500 (less than 1.5%).

While the ETF has over 100 holdings, it allocates more to the top 10, which currently comprise more than 40% of its net assets. They include notable dividend stocks like Verizon, Chevron, and Lockheed Martin, which have high dividend yields and long records of consistent dividend increases. The fund’s focus on high-quality, high-yielding dividend stocks makes it an excellent way to generate passive income.

Different ways to generate passive income

JPMorgan Equity Premium Income ETF, Vanguard Long-Term Bond ETF, and Schwab U.S. Dividend Equity ETF have very different investment strategies. However, the trio has the same goal: to generate passive income for fund holders. That makes them an ideal group of ETFs to buy if you want to set your income on autopilot.