1 High-Yield Dividend ETF to Buy to Generate Passive Income

One of the fastest-growing areas of the exchange-traded fund (ETF) marketplace has been funds pursuing a high yield. There are ultra-high-yield derivative income funds focused on single stocks, but instead of targeting those very volatile products, I prefer the more conservative approach that aims for a high yield but bases it on a broad portfolio of large-cap stocks instead.

Despite its recent track record of underperformance, I still think the JPMorgan Equity Premium Income ETF (NYSEMKT: JEPI) is one of the best options. It's been overlooked in the current market focused almost entirely on tech and growth stocks, but in a broader market where multiple sectors and styles are outperforming, it can be a great way to generate high yield without overexposing yourself to risk.

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What is the JPMorgan Equity Premium Income ETF?

While the JPMorgan Equity Premium Income ETF invests primarily in lower-volatility, dividend-paying stocks, that's not where it gets the majority of its income from. That comes from the covered call strategy that it layers on top of the portfolio.

By writing out-of-the-money call options on the S&P 500 index, the fund is able to generate a predictable, sustainable distribution income stream much higher than typically would be achieved through investing solely in stocks. The covered call strategy does cap some share price appreciation potential, but the big selling point is its current 8% yield.

This approach is advantageous for a couple of reasons.

First, instead of just investing in the entire S&P 500 index, the fund targets the more conservative, more durable, higher-quality stocks in the index. This lowers overall portfolio volatility substantially and helps produce a steadier income stream in the process.

Second, the monthly distribution calendar is more advantageous for income seekers. Most stocks and stock ETFs pay out dividends on a quarterly basis. JEPI's monthly payout schedule gets income in shareholders' hands faster and allows them to deploy that new capital in their portfolio more quickly.

Why JEPI works in the current environment

The past three years have been dominated by the tech rally. Anything outside that area of the economy or adjacent to it has largely been left behind.

That's especially been the case for low-volatility stocks. Investors have shown little interest in this group, while tech, growth, and artificial intelligence (AI) stocks have been roaring.

But cycles change over time, and nothing outperforms forever. In the fourth quarter of 2025, we've seen tech stocks underperform the S&P 500 as the market begins to broaden out. Part of the reason for that has been a slowdown in earnings growth momentum, and another part is concerns about valuation. A third part is the fear that the economy more broadly is slowing.

None of that has triggered a correction in equities yet, but it has caused investors to rethink how they're positioned. While tech could certainly still help drive the market higher, it's important to understand that conditions have shifted.

Peak AI enthusiasm is probably behind us, and there's no longer the expectation that the Fed will significantly lower rates to support the economy. Without those catalysts, the tech rally could take a breather.

That's where funds like the JPMorgan Equity Premium Income ETF could step up. The portfolio's tilt toward quality, value, and income could be ideal if the U.S. economy keeps trending toward slower growth.

Why JEPI is a top high-yield pick in 2026

Those 100%+ yields getting published by some high-risk ETFs might be enticing, but I prefer the more conservative approach of JEPI.

Its focus on durable, defensive equities could be an ideal place to invest in the coming year if the tech rally takes a pause. It's also a good choice for investors who want a high monthly income and are willing to sacrifice some upside potential in order to achieve it.

David Dierking has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.