Key Points
- With dividend yields of 3% or better, three income-generating ETFs that could thrive in 2026 present a compelling case for passive income investors.
- Two bond funds—USHY and BNDX—capture wide swaths of the junk bond and international investment-grade bond markets, respectively.
- VEA covers a broad range of international equities across the market-cap spectrum, allowing it to balance capital appreciation with dividend distributions.
In the face of inflation, changing interest rates, and broader market instability, income-generating exchange-traded funds (ETFs) may be a strong defensive choice for investors in 2026. These funds offer the benefit of steady distributions by focusing on dividend-paying stocks, on bonds, or on other similar strategies. Many of these funds are not designed to experience price appreciation in the same way as traditional equities, which can make them less subject to broader market volatility.
The income-generating ETF space has grown rapidly in recent years with the influx of many new funds with novel strategies. Nevertheless, the three older funds below—each of which has a compelling track record extending back many years—stand out for their stability. Note that none of these funds takes a more aggressive, actively managed approach, which keeps costs for investors low.
USHY's Junk Bond Play May Be Attractive in 2026
The iShares Broad USD High Yield Corporate Bond ETF (BATS: USHY) is a popular bond fund with more than $25.6 billion in assets under management (AUM) and one-month average trading volume near 10 million. USHY focuses on high-yield corporate—or junk—bonds, with almost 2,000 different holdings that are mostly BB or B rated.
Junk bonds may appeal to investors in 2026 due to their high yields amid changing interest rates, as well as their tight spreads relative to investment-grade bonds, which could signal a lower level of credit risk in the short term. Of course, high-yield bonds remain a high-risk investment proposition, so USHY's broad diversification and low expense ratio of 0.08% help make this fund stand out.
When it comes to passive income, USHY pays off for those investors willing to accept a greater risk than they would find in other bond funds. USHY has an impressive dividend yield of 6.68%. Still, investors seeking a purely defensive fixed-income play might choose to sacrifice a portion of this yield to invest in one of the lower-risk alternatives below.
Broad Geographic Focus Outside of the United States for BNDX
For a much broader take on the world of bonds, investors might consider the Vanguard Total International Bond ETF (NASDAQ: BNDX). BNDX's appeal lies both in its breadth—the fund has close to 7,000 holdings representing an average duration of 6.8 years—and in its international focus. Although recent interest rate cuts in the United States could boost interest in bonds, uncertainty surrounding the Federal Reserve and the country's future monetary policy might prompt investors to look abroad.
BNDX offers a dividend yield of 4.36% for an expense ratio of just 0.07%. While it is not the cheapest large-scale bond fund available, the combination of cost and capacity for passive income generation is attractive. By focusing on investment-grade bonds (roughly 80% are rated A or better) and by diversifying geographically, with France, Japan, Germany, and the United Kingdom the most-represented countries, BNDX protects against turbulence in one corner of the bond market. It's no surprise, then, that investors have poured about $75 billion into this fund.
Combining Growth Potential and Income With VEA
The most inexpensive and largest fund on our list by AUM, the Vanguard FTSE Developed Markets ETF (NYSEARCA: VEA) is one of the most popular ETFs across all strategies. VEA's focus is primarily on equities from Canada, Western Europe, Japan, and Australia, making it a great way to lean into ex-U.S. developed markets. It is a broad fund with about 3,800 different holdings, and what it might lack relative to BNDX in portfolio diversification, it makes up for with an expense ratio of just 0.03%.
VEA is not restricted by market capitalization, meaning that investors gain access to companies of many sizes and in many stages of growth. Though investors may not think of VEA primarily as an income-generating ETF, its dividend yield of 3.08% is an attractive bonus on top of price appreciation. The fund has climbed by nearly 37% in the last year, far outpacing the U.S. market as represented by the S&P 500 during that time. This combination of capital growth and income generation makes VEA immensely popular among investors, as its AUM of about $198 billion reflects.
Get Income-Generating Stocks Like iShares Broad USD High Yield Corporate Bond ETF in Your Inbox.
Stop riding the roller coaster of the stock market and sign-up to receive DividendStocks.com's daily ex-dividend stocks and dividend investing news for USHY and related companies.
Companies Mentioned in This Article:| Company | Current Price | Price Change | Dividend Yield | P/E Ratio | Consensus Rating | Consensus Price Target |
|---|
| iShares Broad USD High Yield Corporate Bond ETF (USHY) | $37.59 | +2.2% | 6.68% | 10.79 | N/A | N/A |
| Vanguard Total International Bond ETF (BNDX) | $48.52 | -0.1% | 4.37% | N/A | N/A | N/A |
| Vanguard FTSE Developed Markets ETF (VEA) | $64.63 | -0.5% | 3.09% | 16.34 | Moderate Buy | $64.59 |
About Nathan Reiff
Experience
Nathan Reiff has been a contributing writer for DividendStocks.com since 2024.
- Professional Background: Nathan Reiff is a financial writer and analyst with more than a decade of experience investing and studying the markets through self-guided learning and educational resources from DividendStocks.com and beyond. He began his career in the SEO and cryptocurrency sectors before expanding into general finance and equity research as his interest in investing deepened.
- Credentials: He holds a Bachelor of Arts and Doctor of Musical Arts from Yale University and a Master of Music from the University of Michigan.
- Finance Experience: Nathan has been a contributing writer for DividendStocks.com since 2024. He is also a long-time contributor to Investopedia and Decrypt, where he has written extensively on topics including ETFs, cryptocurrencies, technology, real estate, alternative energy, and consumer staples.
- Writing Focus: He specializes in fundamental analysis, dividend stocks, ETFs, and emerging financial trends. His work bridges traditional markets with digital innovation, helping readers navigate everything from blockchain to blue-chip equities.
- Investment Approach: Nathan follows a long-term, fundamentals-first investing philosophy, emphasizing macroeconomic context, company performance, and sector dynamics.
- Inspiration: Nathan has learned a tremendous amount about the stock market from financial writers and educational resources and is eager to help inspire a new generation of investors through his writing.
- Fun Fact: He’s an avid cook and baker who brings the same creativity and precision to the kitchen that he does to financial analysis.
- Areas of Expertise: Fundamental analysis, ETFs, technology, retail, consumer staples, dividends, cryptocurrencies
Education
Doctor of Musical Arts, Yale University, New Haven, Connecticut; Bachelor of Arts, Yale University, New Haven, Connecticut; Master of Music, University of Michigan, Ann Arbor, Michigan