For investors looking to generate a steady stream of passive income, exchange-traded funds (ETFs) can be an excellent option.
That's because ASX ETFs offer diversification, ease of management, and, in some cases, reliable dividend yields.
Here are three funds that could help you build a strong passive income portfolio.
Vanguard Australian Shares High Yield ETF (ASX: VHY)
The Vanguard Australian Shares High Yield ETF could be a great option for investors seeking reliable passive income. This ASX ETF selects approximately 70 ASX shares that are expected to deliver above-average dividend yields, based on broker research.
Among its key holdings are some of Australia's biggest and most consistent dividend payers, including BHP Group Ltd (ASX: BHP), Commonwealth Bank of Australia (ASX: CBA), Telstra Group Ltd (ASX: TLS), and Transurban Group (ASX: TCL). These companies have strong business models and a history of distributing attractive dividends to shareholders.
At present, the ETF offers a dividend yield of 5%, potentially making it a solid choice for income-focused investors who want exposure to a diversified portfolio of dividend-paying Australian shares.
Betashares Australian Top 20 Equity Yield Maximiser Fund (ASX: YMAX)
Another ASX ETF to consider for passive income is the Betashares Australian Top 20 Equity Yield Maximiser Fund. This fund aims to deliver strong quarterly income by implementing a covered call strategy over a portfolio of the 20 largest blue-chip stocks on the ASX.
The covered call strategy allows the fund to generate additional income by selling call options on its holdings. This approach can enhance yields, particularly in a stable or gradually rising market. Given that dividend yields in some sectors have been declining, this strategy could be a valuable way to maintain strong income levels while also reducing volatility.
Currently, the YMAX ETF trades with a trailing 12-month dividend yield of 7.5%, making it an attractive option for investors who prioritise high levels of passive income. It was recently named as one to buy by Betashares.
Betashares Australian Cash Plus Fund (ASX: MMKT)
Finally, for those seeking capital stability alongside regular income, the Betashares Australian Cash Plus Fund could be worth considering. This ASX ETF provides exposure to a diversified mix of Australian bank deposits and other sophisticated money market securities that are typically only accessible to institutional investors.
MMKT has been named by analysts at Betashares as a top pick for investors looking to enhance returns on their cash. It currently offers a trailing annual dividend yield of 4.7%, with dividends paid out monthly. This frequent payout schedule makes it an attractive option for investors who want consistent cash flow with minimal capital risk.
