In the pursuit of financial independence, Exchange-Traded Funds (ETFs) have emerged as a popular choice, offering a hands-off approach to earning passive income from dividends. These investment instruments provide investors with access to well-diversified portfolios managed by professionals or passive algorithms, making them a convenient and low-maintenance option for those seeking monthly dividends to support their living expenses or early retirement plans.

High-yield monthly dividend ETFs have garnered particular interest among investors, as they offer the potential for steady cash flow while allowing for better budgeting and financial planning. With annualized yields ranging from 8% to 12%, these funds can generate significantly more passive income compared to lower-yielding stocks and even certain bonds.

Five well-diversified ETFs have caught the attention of income-focused investors looking to build a reliable retirement income portfolio:

1. PFFA: This ETF features a diversified portfolio of 188 preferred stocks with a reasonable amount of leverage. It offers a fully-covered 9.6% dividend yield paid out monthly, making it an attractive option for those seeking a defensive and lucrative yield. The fund has demonstrated strong performance, having more than doubled the total return performance of iShares Preferred and Income Securities ETF (PFF) since its inception.

2. RQI: This broadly diversified Real Estate Investment Trust (REIT) Closed-End Fund (CEF) holds a well-diversified portfolio of 203 holdings, mainly comprising equity REITs with some fixed-income holdings. With an 8.25% current yield paid out monthly, RQI has showcased stability by avoiding dividend cuts during the COVID-19 lockdowns. The fund's active management has outperformed the broader REIT sector, making it an attractive choice in the undervalued real estate space.

3. JEPI: With a focus on high monthly dividend payouts, JEPI combines the power of leading mega-cap and large-cap companies, including Microsoft and Amazon.com, with attractive income yields. Offering an approximately 8% trailing twelve-month dividend yield, JEPI preserves shareholder capital effectively through its notional covered-call strategy.

4. SPYI: This ETF offers similar characteristics to JEPI, with a notable distinction being its diversified underlying exposure to mega-cap and large-cap stocks. SPYI pays out attractive monthly dividends funded by an option-selling strategy and provides exposure to mega-cap technology stocks. While it carries a higher expense ratio, it compensates with a higher dividend yield, nearly reaching 12%.

5. UTF: For income-focused investors seeking defensive holdings, UTF provides access to an actively-managed infrastructure fund with an 8.4% dividend yield paid out monthly. The fund sustained its dividend even during the COVID-19 lockdowns, and its holdings stand to benefit from significant expected future investment in the infrastructure sector.

Investors who aim to create a portfolio of high-yielding monthly dividend funds will find these five options to be a great starting point, offering a well-rounded and diversified approach towards achieving financial independence. While active management and individual stock picking may potentially yield greater total returns, these ETFs provide a passive alternative for investors who prioritize a hands-off approach.

As interest rates appear set to fall in the coming years, preferred equities, real estate, mega-cap tech stocks, and infrastructure funds may see increased value, making these ETFs appealing investment options for those seeking steady income.

Whether aiming for early retirement or simply looking to supplement current income, high-yield monthly dividend ETFs present an opportunity for investors to secure financial freedom and maintain a long-term perspective even during high market volatility.