How to Build a Bulletproof Monthly Passive-Income Portfolio in 2024 With Just $25,000

Investing in low-cost dividend-focused index funds can help you generate passive income at a low cost for life.

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Equity investors are looking at the stock market to build a passive and recurring income stream. While investing in real estate requires a significant amount of capital, you can kickstart a passive-income equity portfolio at a low cost.

However, for beginner investors, it is quite difficult to consistently identify winning dividend stocks. Typically, you need to buy shares of quality dividend companies that generate cash flows across market cycles. Moreover, these payouts should increase each year, raising your effective yield in the process over time.

So, you need to move beyond a company’s dividend yield to analyze its business fundamentals, balance sheet, and various metrics, such as the payout ratio.

In recent months, rising interest rates have led to higher debt costs for companies part of capital-intensive sectors such as utilities, real estate, and renewable energy. Due to higher bond rates and a sluggish macro environment, TSX companies such as Algonquin Power & Utilities and Northwest Healthcare suspended their dividends in 2023, as their payout ratios were unsustainable.

It’s essential to create a portfolio of blue-chip dividend stocks that have survived multiple recessions in the past while maintaining their dividends. Alternatively, you can also consider investing in dividend-paying ETFs, or exchange-traded funds, that trade on the TSX.

ETFs hold a portfolio of stocks that offer investors exposure to multiple sectors at a low cost, resulting in portfolio diversification and lower risk.

Here are two ETFs passive-income-seeking, Canadian investors can consider buying right now.

iShares Core MSCI Canadian Quality Dividend Index ETF

With $926 million in assets under management, iShares Core MSCI Canadian Quality Dividend Index ETF (TSX:XDIV) is a popular ETF in Canada. It is a low-cost portfolio of Canadian stocks with above-average yields and steady dividends.

These stocks generally have strong financials, solid balance sheets, and stable earnings. The ETF was launched in June 2017 and has since returned over 9.5% annually in the last six years, allowing shareholders to outpace inflation comfortably. With a yield of 4.8%, investors can generate $480 in annual dividends for every $10,000 in investments.

The ETF has a management fee of 0.10% and a management expense ratio of 0.11%, making it one of the cheapest funds in Canada. Some of the top holdings of the fund include TSX giants such as Royal Bank of Canada, Manulife Financial, Pembina Pipeline, Toronto-Dominion, and Sun Life Financial.

The XDIV ETF has a 44.7% exposure to the financial sector, followed by energy at 20.8%, utilities at 17.4%, and communication at 9.8%.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
XDIV ETF$25.69487$0.103$50.16Monthly
XRE ETF$16.11776$0.07$54.32Monthly

iShares S&P/TSX Capped REIT ETF

You can further diversify your portfolio by buying shares of iShares S&P/TSX Capped REIT ETF (TSX:XRE). A real estate-focused ETF, the XRE offers you exposure to 16 real estate investment trusts across verticals, including industrial, office, retail, and residential. With close to $1 billion in assets under management, the ETF offers you a yield of 5.2%.

The Foolish takeaway

An investment of $25,000 distributed equally between the two ETFs will help you earn $1,250 in annual dividends. Both the ETFs have a monthly payout, which means you can earn over $100 each month.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Aditya Raghunath has positions in Algonquin Power & Utilities. The Motley Fool recommends NorthWest Healthcare Properties Real Estate Investment Trust and Pembina Pipeline. The Motley Fool has a disclosure policy.

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