The Dividend ETF That Generates Passive Income While You Sleep

Exchange-traded funds (ETFs) can serve as a valuable investment vehicle for risk-averse investors who are seeking income but are worried about the price swings that come with owning a single stock. Also, an ETF performs the hard work of setting guidelines and strict criteria for what gets included, saving investors plenty of research time.

For anyone seeking an ETF that generates income while they sleep, the iShares Core High Dividend ETF (NYSEMKT: HDV) is worth a look.

Image source: Getty Images.

Receiving a favorable yield while limiting risk

Investments with yields of 8% to 10% seem exceptionally attractive on the surface. But those investments are often ones whose yields can't be sustained, either because they're eventually slashed or because dividend payouts are paused. That's why, even if it seems less exciting, that focusing on companies with more sustainable payouts is often the way to go, as you can count on them more for reliability.

That's what HDV can offer through its holdings. The goal of the ETF is to mimic the performance of the Morningstar Dividend Yield Focus Index, which is designed to provide exposure to stocks from the Morningstar U.S. Market Index with "attractive dividend yields" and "strong financial quality."

Its holdings are filled with well-known companies, with the top five including:

• ExxonMobil
• Chevron
• Abbvie
• Verizon Communications
• Pfizer

All of those companies have favorable yields, with the dividends from Verizon and Pfizer at the top of the pile: Verizon's dividend yields 5.8%, while Pfizer's yields 6.3%.

Not relying on a single stock

The trailing 12-month yield for HDV is roughly 3%, which is lower-yielding than Verizon's and Pfizer's dividend payouts. That said, HDV has outperformed some of its top holdings so far this year, boosting total returns for its shareholders. Part of the reason is diversification, as the ETF isn't entirely dragged down by a weaker performance by any individual stock.

For example, ExxonMobil and Chevron have both done well in 2026 with increased oil prices, with their stock prices climbing around 37% and 35%, respectively. But AbbVie and Pfizer have had less-strong performances, rising around 13% and 9%, respectively. Verizon has performed better than AbbVie and Pfizer this year, climbing around 19%. But HDV has outperformed AbbVie, Pfizer, and Verizon, with shares climbing about 21%.

Owning ExxonMobil or Chevron has offered a higher return thus far this year, but anyone who owns shares of AbbVie, Pfizer, or Verizon has watched those shares underperform HDV. That's the power of an ETF for a risk-averse investor: they don't have to figure out, at any given time, which stocks could be winners.

The risk is also spread across HDV-held companies in different sectors. If there were a pullback in oil prices, for example, shares of ExxonMobil and Chevron may be hit hard. But at the same time, pharmaceutical stocks could perform well, allowing AbbVie and Pfizer to offset those losses. With a strong performance thus far that can continue through the rest of 2026 and a favorable yield, HDV is an investment worth considering for income generation without requiring the need to take on excessive risk.

Jack Delaney has positions in Verizon Communications. The Motley Fool has positions in and recommends AbbVie, Chevron, and Pfizer. The Motley Fool recommends Verizon Communications. The Motley Fool has a disclosure policy.