How to Build a Bulletproof Monthly Passive Income Portfolio With Just $10,000

Investing in monthly-paying dividend ETFs such as XDIV can help you earn passive income with just $10,000 in 2024.

| More on:
pipe metal texture inside

Image source: Getty Images

Investing in dividend stocks with monthly payouts can help individuals begin a passive income stream at a low cost. However, before investing in dividend stocks, you should understand that the distributions can be revoked or suspended at any time, especially if the company’s financials deteriorate.

For instance, several banks south of the border were forced to stop dividend payments during the financial crash of 2008–09. Similarly, energy stocks such as Suncor reduced dividends when oil prices fell off a cliff at the onset of the COVID-19 pandemic. In the last 18 months, capital-intensive companies such as Algonquin Power & Utilities and Northwest Healthcare have cut their dividends to accommodate higher interest rates and inflation.

Before investing in dividend stocks, you need to ensure the companies have strong fundamentals and sustainable payout ratios. Ideally, these companies should have a growing earnings base, providing them with enough room to reinvest in growth projects, lower balance sheet debt, target accretive acquisitions, and raise dividends.

Moreover, in addition to the dividend yield, you need to analyze if the company is positioned to grow its cash flows across market cycles and raise its distributions each year, increasing the yield-at-cost by a significant margin over time.

Invest in blue-chip TSX dividend stocks

There are several dividend stocks trading on the TSX that offer investors a tasty dividend yield. One popular TSX dividend stock is Enbridge (TSX:ENB), which pays shareholders an annual dividend of $3.66 per share, indicating a yield of 7.73%.

Enbridge is part of a cyclical sector, but its widening base of cash-generating assets has allowed it to increase dividends by 10% annually since 1995. Its cash flows are predictable and indexed to inflation, making it relatively immune to the volatility associated with oil prices.

In addition to a constant stream of recurring income, long-term shareholders will also benefit from capital gains. Priced at 17 times forward earnings, ENB stock trades at a discount of 12.5% to consensus price target estimates.

Invest in monthly dividend ETFs

Identifying quality dividend stocks consistently is not easy, especially for beginner investors. Additionally, most dividend companies in Canada distribute dividends every quarter rather than every month.

So, investors can instead consider buying shares of monthly dividend ETFs, or exchange-traded funds, such as the iShares Core MSCI Canadian Quality Dividend Index ETF (TSX:XDIV). The ETF pays shareholders a monthly dividend of $0.13 per share, indicating a forward yield of 6%.

The XDIV ETF was launched in June 2017 and has since returned 30% to shareholders. After adjusting for dividends, total returns are closer to 74%.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
XDIV$26.08383$0.13$49.79Monthly

Typically, an ETF holds a basket of companies across multiple sectors, providing you with diversification and lowering portfolio risk. The XDIV ETF holds 17 stocks across sectors such as financials, energy, utilities, communications, materials, and consumer discretionary.

An investment of $10,000 in the XDIV ETF will buy you 383 units of the fund and earn you almost $50 each month in dividends. If dividends increase by 10% annually, your payout will double in the next seven 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 Aditya Raghunath has positions in Algonquin Power & Utilities and Enbridge. The Motley Fool recommends Enbridge and NorthWest Healthcare Properties Real Estate Investment Trust. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Payday ringed on a calendar
Dividend Stocks

Passive Income: How Much Should You Invest to Earn $1,000 Every Month?

These three monthly-paying dividend stocks can help you earn a monthly passive income of $1,000.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 6% Dividend Stock Pays Cash Every Month

Can a 6% dividend yield help you build a monthly retirement income? An investment made right can help you build…

Read more »

Dividend Stocks

3 Dividend Stocks to Double Up on Right Now

Some of these dividend stocks will take longer to recover than others, but they'll certainly pay you to stick around.

Read more »

TFSA and coins
Dividend Stocks

TFSA Passive Income: How Much to Invest to Earn $250/Month

Want to earn $250/month of tax-free passive income? Here are four Canadian dividend stocks to look at buying in your…

Read more »

stock analysis
Dividend Stocks

Meta Is Now a Dividend Stock, but This TSX Stock Is a Better Buy

Social media giant Meta is now a dividend payer but a TSX stock is a better buy for its 156-year…

Read more »

TFSA and coins
Dividend Stocks

TFSA Passive Income: 2 Top Canadian Dividend Stocks for Retirees

These stocks offer great yields and have increased their dividends for decades.

Read more »

Happy Retirement” on a road
Stocks for Beginners

2 TSX Stocks That Could Help Set You Up for Life

Looking for some of the best TSX stocks to add to your portfolio? Here's a duo to consider that can…

Read more »

Retirement plan
Dividend Stocks

Is Dollarama a Great Stock for Retirement Planning?

Here’s why I think Dollarama is an amazingly reliable stock for retirement portfolios.

Read more »