Vanguard has over 85 exchange-traded funds (ETFs), but not all of them focus on equities. Many target bonds and risk-free assets like U.S. Treasuries.

It's hard for an equity ETF to compete with a bond fund on yield alone. However, top ETFs reward investors with passive income and potential capital gains.

Here's why the Vanguard Value ETF (VTV -0.62%), Vanguard High Dividend Yield ETF (VYM -0.50%), Vanguard Dividend Appreciation ETF (VIG -1.24%), Vanguard Consumer Staples ETF (VDC -0.15%), and Vanguard Utilities ETF (VPU 1.09%) are five excellent choices for generating a lifetime of passive income while getting diversified exposure to a variety of companies.

A person stacking coins on wooden blocks that read "YIELD."

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1. Vanguard Value ETF

With a mere 0.04% expense ratio, 342 holdings, and a 2.3% dividend yield, the Vanguard Value ETF is perhaps one of the simplest and lowest-cost ways to generate passive income.

The fund excludes top growth names like Microsoft, Apple, Nvidia, Amazon, Alphabet, Meta Platforms, and Tesla -- which are all holdings of the Vanguard Growth ETF.

Since the start of 2023, the Vanguard Value ETF has been smoked by the S&P 500 and the Vanguard Growth ETF -- which is up a mind-numbing 77% in just 18 months as megacap growth stocks have carried the broader indexes to new heights. But long-term investors know that just about any trend can enamor markets over the medium term.

VTV Total Return Level Chart

VTV Total Return Level data by YCharts

Risk-averse investors looking to limit volatility will appreciate the consistency of the Vanguard Value ETF. The fund's top holdings are Berkshire Hathaway, Broadcom, JPMorgan Chase, ExxonMobil, and UnitedHealth. Aside from Broadcom -- which has been on a tear along with most of the semiconductor industry -- these companies are unlikely to see their stock prices increase several-fold over the short term. However, many holdings in the fund pay stable and growing dividends or reward shareholders with stock buybacks -- which is Berkshire Hathaway's preferred method for returning capital to shareholders.

Add it all up, and the ETF is a great way to invest in the broader market through a value lens. This may be a particularly effective strategy for investors who don't want to pay a premium price for growth stocks.

2. Vanguard High Dividend Yield ETF

The Vanguard High Dividend Yield ETF has many holdings similar to the Value ETF. The key difference is that each holding must pay a dividend -- with a big emphasis on consistent dividend raises. So companies that are great value stocks but don't pay dividends (like Berkshire Hathaway) are excluded from the fund.

With 556 holdings, the High Dividend Yield ETF has more holdings than the Value ETF. As expected, it has a higher yield at 2.8%. But still, a yield under 3% may come as a surprise for a fund labeled as "high-yield."

However, it's worth understanding that outsized market gains typically lead to lower dividend yields. If a company's stock price increases at a faster rate than its dividend, the yield will go down. For example, Walmart announced a 9% dividend raise in February -- its largest increase in over a decade. But the stock is up a blistering 28.9% year to date -- making it the best-performing component in the Dow Jones Industrial Average -- even better than growth stocks like Amazon and Microsoft. As a result, Walmart's dividend yield has gone down -- but investors would certainly trade a massive capital gain for a percentage point or two of yield.

Plenty of stocks like Walmart in the High Dividend Yield ETF have undergone valuation expansions over the last few years -- benefiting investors with capital gains but lowering their dividend yields. So, the High Dividend Yield ETF doesn't yield as much as it used to -- but it is still an excellent source of passive income for investors looking for diversification and industry-leading companies.

3. Vanguard Dividend Appreciation ETF

The Vanguard Dividend Appreciation ETF focuses on growth, income, and value stocks alike. Its objective is to find companies with a track record of increasing their payouts with less emphasis on valuation or yield.

The top holdings in the fund are Apple and Microsoft, which are noticeably absent from the Value ETF and High Dividend Yield ETF. Despite both yielding less than 0.7%, Apple has raised its dividend every year since 2012 while Microsoft has increased its dividend at an average rate of over 10% per year for the last 10 years. That's a far faster pace of increase than ultra-safe dividend-paying stalwarts like Coca-Cola or Procter & Gamble.

The Dividend Appreciation ETF is a great choice for investors who care more about earnings growth and where a dividend is heading rather than where it has been or what a stock yields today.

4. Vanguard Consumer Staples ETF

The Vanguard Consumer Staples ETF mirrors the performance of the consumer staples sector. Top holdings include Procter & Gamble, Costco Wholesale, Walmart, Coca-Cola, and PepsiCo. At 0.10%, the fund has a slightly higher expense ratio than some of Vanguard's other funds, but that's still just $1 for every $1,000 invested.

One of the greatest benefits of investing in the consumer staples sector is its resilience during recessions and relatability. Consumer staples companies are less impacted by economic cycles than consumer discretionary companies that depend on consumers buying things they don't regularly need. During a recession, consumers are more likely to cut spending on an expensive vacation or high-priced item than toothpaste or paper towels.

Even if you're new to investing, chances are you're familiar with many top consumer staples holdings. You may not know Coca-Cola owns Topo Chico, BodyArmor, and Simply juices and drinks. But chances are, you're generally aware of the business model.

Consumer staples' easy-to-understand nature, paired with earnings consistency no matter the market cycle, makes it the perfect sector for risk-averse investors looking to generate income from familiar companies.

5. Vanguard Utilities ETF

Like consumer staples, utility companies tend to be relatively recession-resistant compared to other sectors. In terms of budgeting, cutting electricity or water consumption is likely further down the list than reducing discretionary purchases.

Utilities benefit from growing consumption and population growth. The higher the demand for commodities like electricity, gas, and water, the greater the need for infrastructure expansions to boost supply.

In this vein, utilities may be a better option than a bond or risk-free rate. Many top holdings in the Vanguard Utilities ETF work with agencies and regulators to set prices and pass along profits to shareholders. A single utility may be vulnerable to a certain geographic market. But a portfolio of utilities is a great way to earn a stable yield while still being invested in the market.

The Vanguard Utilities ETF has a 3% yield -- which is higher than the High Dividend Yield ETF. While the fund is unlikely to outperform the major indexes during a bull market, it does stand a good chance to be less volatile if there is a major sell-off or correction.

A hands-off approach to generating passive income

There are many different ways to target passive income in the stock market. Some investors prefer companies with limited growth prospects that use dividends as the primary way to pass along profits to shareholders. Others may look for companies that have increased their payouts every year for several decades.

These five ETFs provide worthy starting points for investors looking to generate passive income with a focus on diversification.

One of the best ways to invest in ETFs is to pair them with individual stock holdings. If you already have a lot of exposure to top value names, the Dividend Appreciation ETF could be a good way to tap into some growth stocks while still focusing on companies that are growing their dividends. A sector ETF in consumer staples or utilities could be a good choice if you don't already own top companies in these sectors.

Ultimately, the best decision will depend on what's in your portfolio, your risk tolerance, and your investment objectives. No matter which ETF you choose (if any), you can rest easy knowing these Vanguard funds charge ultra-low fees.