This Overlooked Dividend ETF Could Set You Up for Decades of Passive Income. Here's How.

If you're years or even decades away from retirement, using your portfolio to generate dividend income might not be a priority. But dividend stocks still deserve consideration as part of a broader long-term portfolio allocation.

You don't necessarily want to reach for ultra-high yields, but capturing something in the 3% range built on a portfolio of durable, high-quality companies is easily doable.

With the Fidelity High Dividend ETF (NYSEMKT: FDVV), you get an impressive growth component on top of it.

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FDVV isn't your typical high-dividend-yield ETF

The Fidelity High Dividend ETF (exchange-traded fund) tracks an index that targets large- and mid-cap dividend payers that are expected to keep growing and paying those dividends. But if you look under the hood, you might be surprised to see Nvidia, Apple, Microsoft, Broadcom, and Alphabet among the top 10 holdings. All of those stocks pay minimal yields, and you wouldn't expect to find them in a high-yield ETF.

The key is in how stocks are selected and weighted for the fund. Dividend yield is a key consideration, but so is dividend growth rate and payout ratio. The megacap tech stocks score very well on those components, and that helps them qualify for inclusion.

But the reason they're getting such large allocations in the portfolio is that their dividend attractiveness is measured relative to their sector, not the broader market. Therefore, Nvidia isn't getting measured against a high-yield utility stock. It's measured against its sector peers and scores very highly.

That methodology results in a unique product within the dividend ETF category -- an ETF yielding 2.6% while maintaining a very growth-tilted profile.

FDVV can still be a passive-income machine

Even with a more modest high yield, the Fidelity High Dividend ETF has the ability to generate thousands of dollars in annual dividend income. A $100,000 initial investment today could produce nearly $3,000 in dividends over the course of the year at today's rate.

But this might be especially appealing for someone looking to combine growth and income in a single ETF. The 28% allocation to the tech sector, mostly concentrated in the megacap names, ensures participation in future tech rallies and the artificial intelligence (AI) trade.

With roughly $10 billion in assets, this fund is still overlooked. It doesn't rank among the 10 largest U.S. dividend ETFs by assets under management (AUM) despite having a five-year average annual return of nearly 14%, one of the best marks in this group.

For investors looking to build a substantial passive-income stream but keep some growth upside, the Fidelity High Dividend ETF should be on your radar.

David Dierking has positions in Apple. The Motley Fool has positions in and recommends Alphabet, Apple, Broadcom, Microsoft, and Nvidia. The Motley Fool has a disclosure policy.