A Lifetime of Passive Income is Hiding in Plain Sight

Seeking passive income ideas? Check out this Canadian monthly dividend ETF with a juicy 6.8% distribution yield.

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Canadian investors tired of chasing elusive get-rich-quick schemes and volatile investments could find comfort and stability in passive income investing in 2024. Today’s passive income idea is a marvelous source of regular high-yield monthly dividend income streams for a lifetime that could have been hiding in plain sight. The iShares Canadian Financial Monthly Income ETF (TSX:FIE) is an innovative exchange-traded fund (ETF) with a unique approach to generating passive income.

Whether one is still working, nearing retirement, or already in the increasingly longer, and golden, retirement years, the FIE ETF is a diversified fund that can facilitate a lifetime of passive income. Let’s take a closer look.

Top Canadian dividend-income ETF for a lifetime of passive income

The iShares Canadian Financial Monthly Income ETF is a multi-asset fund with over $980 million in assets under the management of BlackRock – the world’s largest ETF provider by assets under management. The fund invests its capital primarily in Canadian financial sector dividend paying common stocks and preferred shares, and maintains unique exposure to corporate bonds and income trusts to create a moderate-risk diversified source of reliable distributable income streams.

The ETF pays a flat $0.04 per unit distribution every month, which currently yields a juicy 6.8% annually in monthly passive income.

Since its inception in 2010, the ETF has steadily grown its asset base and delivered a respectable 7.2% total return to investors over the past decade. The passive income idea could be a source of capital growth, too. Given its current dividend yield of 6.8%, an investor could double her money in just over a decade, with regular reinvestments – the Rule of 72 predicts.

How can the iShares Canadian Financial Monthly Income ETF afford to provide a lifetime of passive income? The fund’s 26 holdings are optimized for regular dependable cash flows. About 9.8% of the underlying fund is invested in pure fixed income securities from well-established companies with strong balance sheets. Preferred stocks comprise about 19.9% of the fund’s holdings. Preferreds receive dividends first before common shareholders do. The remainder of the underlying portfolio is essentially dividend-paying equity investments.

Most noteworthy, the ETF is optimally diversified across Canadian economic sectors. Although banks, insurance and financial services stocks and bonds comprise 82.7% of the fund’s assets, the ETF has 5.2%, 4.2% and 3.4% exposures to energy, utilities, and real estate sector blue-chips stocks, respectively.

Investors pay a 0.85% management expense ratio, only $8.50 per every $1,000 invested.

Time to invest?

If you are a moderate-risk investor looking for regular income from a diversified portfolio, consider purchasing units of the iShares Canadian Financial Monthly Income ETF. This ETF provides monthly dividend income and offers a reliable source of passive income in the long term.

The iShares Canadian Financial Monthly Income ETF invests in the major Canadian chartered banks and prominent blue chip stocks in the financial sector. Generally, financial sector stocks and preferred shares are known for their reliable income potential, and this ETF provides investors with a diverse range of such assets in one investment. Additionally, it includes 10% exposure to a low-risk portfolio of curated corporate bonds, further enhancing the potential for passive income generation. With its monthly dividend payouts, this medium-risk income ETF can meet your passive income needs throughout your lifetime.

However, it’s important to note that the investment’s focus on income-oriented fixed income and preferred stocks limits growth opportunities. The majority of returns will come in the form of dividend yield, with limited capital gains. To grow your capital, it may be necessary to consider adding more growth-oriented stocks and ETFs to your portfolio. Alternatively, investors can reinvest dividends and contribute additional capital during their active working years to maximize their passive income in later years.

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 Brian Paradza has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

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