CPP Pensioners: How to Boost Your Passive Income by 100% With Dividend Stocks and Your TFSA!

Here’s how BMO Canadian High Dividend Covered Call ETF (TSX:ZWC) can help you double your monthly passive income.

With the average Canadian Pension Plan (CPP) payment being pinned at around $680 per month (it could be much lower if you opt to receive CPP benefits earlier), it’s the responsibility of prospective retirees to supplement their pension with an income stream of their own, preferably through use of a Tax-Free Savings Account (TFSA).

For Canadians who’ve regularly been contributing and investing systematically in equities (and not timing the market by hoarding bonds!), one should now have enough principal to construct a TFSA-based tax-free income stream that could match, if not exceed one’s potential CPP payments.

For the average CPP pensioner, you’d need north of an 8% yield to achieve $680 per month with $100,000 in principal. That’s doubling the “4% rule,” and although it seems aggressive, there are high-yield securities out there whose distributions (or dividends) are not at risk of a significant reduction or cut.

It’s not always safety that you’re trading off when you opt for a higher yielder. In some instances, it’s growth potential that you’re trading off, meaning lower-than-average capital gains that can be expected over prolonged periods of time. As a retiree, though, getting bigger monthly income should take precedence over capital appreciation potential, although dividend-growth potential should still be taken into consideration.

Consider one of my favourite covered call ETFs, BMO Canadian High Dividend Covered Call ETF (TSX: ZWC), which sports a massive 6.9% yield at the time of writing. For those unfamiliar with the covered call line of BMO ETFs, they essentially trade upside potential for income upfront through the use of an options strategy that’s implemented by the fund managers.

Although one’s downside is reduced from such a strategy, upside risk is introduced with a ceiling that caps upside potential.

For retirees and conservative income investors, though, the trade-off is more than worthwhile, and so too is the price of entry (0.72% MER).

ZWC collects dividends from its long positions and the premium income from covered calls goes on top of the dividend payments, allowing ZWC to sport an even higher yield, providing investors with a bit more downside protection.

With such investment products readily available to Canadians, there’s never been a better time to give oneself a raise with a higher yield without raising one’s risk. The constituents within the ZWC are hand-picked not only for their handsome yields but also for their dividend safety.

In essence, ZWC has the “safest” near-7% yield out there and can act as a one-stop shop for those seeking a second pension after hanging up the skates.

Stay hungry. Stay Foolish.

Fool contributor Joey Frenette has no position in any of the stocks mentioned.

More on Dividend Stocks

man shops at grocery store
Dividend Stocks

Choice Properties Pays Monthly: Does the Yield Compensate for Higher Rates?

Choice’s yield deserves a closer look at cash after property spending and financing costs.

Read more »

senior man and woman stretch their legs on yoga mats outside
Dividend Stocks

Best Monthly Dividend Stocks on the TSX? My Top Picks for Today

Looking for monthly dividend income and an attractive growth profile? These two TSX stocks are my top picks today.

Read more »

oil pumps at sunset
Dividend Stocks

Canadian Natural Resources vs. Suncor: The Dividend Stock to Own Through 2026

Let’s compare Canadian Natural Resources and Suncor Energy across their financial performance, dividend track records, growth prospects, and valuations to…

Read more »

man studies at computer
Dividend Stocks

Here Are The 3 Canadian Stocks I’d Tell a New Investor to Buy ASAP

Discover strategies for investing in stocks that can help you thrive in a market filled with volatility and uncertainty.

Read more »

telecom towers concept for wireless technology
Dividend Stocks

BCE Stock Is Down 2% After Q3: Is the 5.8% Dividend Safe?

BCE stock slipped 2% after Q3 earnings. See whether the 5.8% dividend is safe, how free cash flow covers it,…

Read more »

TFSA (Tax-Free Savings Account) on wooden blocks and Canadian one hundred dollar bills.
Dividend Stocks

Too Busy to Invest? This Dividend Stock Deserves a Permanent Place In Your TFSA

This Canadian stock appears well-positioned to keep paying and growing its dividend and deliver solid capital gains in the long…

Read more »

monthly calendar with clock
Dividend Stocks

The TFSA Strategy I’d Use to Generate $600 in Monthly Tax-Free Income

A smarter TFSA approach is to prioritize sustainable total returns and diversification rather than chasing an arbitrary monthly income number.

Read more »

Concept of rent, search, purchase real estate, REIT
Dividend Stocks

How Much to Invest in Killam Apartment for $250 a Month in Dividends

Want $250 a month? Killam Apartment pays $0.06 a unit at $17.45. See how many units to buy, what Q3…

Read more »