Investing in exchange-traded funds (ETFs) is a great way to complement your stock portfolio. ETFs make it easy to invest broadly in the market, target a specific asset class, or capitalize on a compelling theme.
I like to use ETFs to enhance my portfolio's ability to produce passive income. I plan to pile into three income-focused ETFs this month: Schwab U.S. Dividend Equity ETF (SCHD +1.46%), JPMorgan Equity Premium Income ETF (JEPI +0.56%), and State Street SPDR Portfolio High Yield Bond ETF (SPHY +0.13%). Adding to these funds in December will help give my passive income a boost in 2026.
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100 top dividend stocks
I already own lots of high-quality dividend stocks. However, I think that the Schwab U.S. Dividend Equity ETF is a great fund to enhance my income portfolio. It holds 100 top high-yield dividend stocks. The ETF tracks an index (Dow Jones U.S. Dividend 100 Index) that screens stocks for their dividend quality, including yield and five-year dividend growth rate.
As a result, the Schwab U.S. Dividend Equity ETF offers an excellent blend of income and growth. Its distribution yield over the last 12 months is an attractive 3.9%. Meanwhile, the fund's holdings have increased their payments by an average of more than 8% annually over the past five years. As a result, the fund pays a steadily rising income stream. It has also historically delivered a strong total return (more than 11% annually over the last five- and 10-year periods, and more than 12% annualized since its inception in 2011).
NYSEMKT: SCHD
Key Data Points
Investing in this ETF also helps me further diversify my dividend stock portfolio. It holds several stocks that I don't currently own, including its top four holdings: Merck, Amgen, Cisco Systems, and AbbVie. They offer attractive current yields ranging from 2.1% to 3.3%, and all have increased their dividends annually for over a decade.
A passive way to generate options income
Writing options can be a lucrative income strategy. However, it's much more active than other income-generating strategies. You typically need to execute several trades each month as the options approach or pass their expiration date.
ETFs such as the JPMorgan Equity Premium Income ETF make it easy to collect passive income generated from options trading. The fund's managers execute a disciplined strategy of writing out-of-the-money (above the current market price) call options on the S&P 500. This strategy generates options income each month, which the fund distributes to investors.
NYSEMKT: JEPI
Key Data Points
Over the past 12 months, the fund has delivered an 8.4% income yield to investors. Additionally, the fund holds a portfolio of stocks that provide investors with additional upside potential. As a result, the fund has produced a more than 10% annual return over the last three- and five-year periods. The fund charges a very reasonable ETF expense ratio of 0.35% for its attractive combination of income and total return potential.
One person's junk is another's income treasure
Bonds are an important part of any portfolio. They provide a steady stream of fixed income as well as diversification benefits, which help reduce a portfolio's volatility and risk profile. I've found that investing in bond ETFs is the best way to add this vital asset class to my portfolio.
NYSEMKT: SPHY
Key Data Points
I own a few bond ETFs, including the State Street SPDR Portfolio High Yield Bond ETF. This fund provides diversified exposure to the high-yield debt market (junk bonds). While these bonds have a higher default risk compared to government bonds and investment-grade bonds, they offer a higher yield. The State Street SPDR Portfolio High Yield Bond ETF's distribution yield is 7.4% over the last 12 months.
The ETF's broad diversification -- it holds 1,950 bonds issued by companies across all industries -- helps reduce default risk. It also holds bonds with varying maturities, muting some of its interest rate risk. I believe the fund is a valuable addition to my bond portfolio, as it provides me with additional income while incurring only slightly more risk.
Loading up on these ETFs heading into 2026
I plan to pile into the Schwab U.S. Dividend Equity ETF, JPMorgan Equity Premium Income ETF, and State Street SPDR Portfolio High Yield Bond ETF this December. These purchases will position my portfolio to generate more income in 2026. That will help boost my base return, while giving me more income to reinvest in the coming year.
