Building Passive Income: The Best ETF Strategies for July

2026-01-15 10:27:49

If your dream is to let your investments work for you while you focus on living, you’re not alone. Many investors are turning to dividend ETFs and income-generating funds as a path to financial freedom. The key is finding the best ETF for dividends that align with your income goals and risk tolerance. Here are three compelling options worth considering this month.

Dividend Aristocrats in One Basket

The Schwab U.S. Dividend Equity ETF (SCHD) offers a straightforward approach to dividend investing. Rather than picking individual dividend stocks, this fund bundles 100 of the most reliable dividend payers into a single holding.

What makes this attractive? The fund focuses on companies with a proven track record. These aren’t random dividend payers—they’re screened for payment sustainability and consistent growth. At the last review, the average holding delivered a 3.8% dividend yield while showing an 8.4% annual dividend increase over five years.

This dual benefit matters: you get meaningful income now, plus rising payments as companies increase their dividends. It’s steady, predictable, and requires minimal decision-making on your part.

Monthly Income from Market Exposure

The JPMorgan Nasdaq Equity Premium Income ETF (JEPQ) takes a different approach. It generates income through a sophisticated strategy: selling call options on Nasdaq-100 companies. In simpler terms, the fund gets paid premiums for agreeing to sell shares at higher prices, then passes that income to you monthly.

The numbers speak loudly. Recent monthly distributions have pushed yields above 12%, with annual yields exceeding 10%. That’s roughly double what you’d earn from traditional bonds. The strategy also provides equity market participation through a data-driven stock portfolio, so you’re not just collecting income—you’re positioned for potential capital appreciation.

Tapping Higher-Yielding Bonds

For those seeking diversification beyond stocks, the SPDR Portfolio High Yield Bond ETF (SPHY) provides broad exposure to non-investment-grade bonds—often called high-yield or “junk” bonds.

Yes, they carry more risk than safer investment-grade bonds, but this fund reduces that risk through diversification. It holds roughly 1,950 bonds across all industries and credit ratings, with an average yield to maturity of 7.7%. Compare that to investment-grade bonds yielding 4-5%, and you can see why this adds a meaningful income boost to a portfolio.

The average maturity of 4.6 years keeps reinvestment risk manageable while providing solid current income.

A Diversified Income Strategy

These three funds represent different pieces of a passive income puzzle. Dividend stocks offer growth plus income. Options-based strategies deliver premium yields with market exposure. Bonds provide diversification and further income sources. Together, they create a more resilient income stream.

Monthly contributions to any or all of these funds compound your passive income over time. That’s how steady investing in proven income ETFs moves you closer to the financial freedom of letting your portfolio cover your expenses.

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