Passive Income: How Much to Invest to Get $6,000 Each Year

Here’s how much you’ll need to invest in an 11% yielding covered call ETF like HDIV to achieve $6,000 a year in passive income.

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When it comes to generating $6,000 each year in passive income, the specifics – such as how much you need to invest and which assets you choose – play a crucial role. Instead of providing a broad, generalized answer that leaves too much to the imagination, I prefer to ground our discussion in concrete examples.

But before diving into the details, let’s set the stage with some key assumptions to simplify our calculations and focus our example.

First, we’ll assume that all investments are made within a Tax-Free Savings Account (TFSA). The TFSA is a pivotal element of our strategy because it allows earnings to grow tax-free, eliminating the need to factor in taxes when calculating our required investment.

For our investment vehicle, we’ll focus on Hamilton Enhanced Multi-Sector Covered Call ETF (TSX:HDIV). This choice is deliberate, as HDIV offers a diversified approach to generating income, combining the potential for high yield with the strategic use of covered calls across multiple sectors.

What is HDIV?

I chose HDIV for our example because it represents a far more diversified approach to income investing than simply focusing on a select few high-yielding dividend stocks or REITs. This diversification is crucial in creating a more resilient investment strategy, especially when aiming for consistent passive income.

HDIV holds eight other Hamilton ETFs, each designed to provide exposure to specific sectors: financials, technology, energy, healthcare, utilities, and gold. This mix aims to approximate the Canadian market while bolstering areas where it traditionally lacks, such as healthcare and technology.

The underlying ETFs within HDIV primarily employ a covered call strategy. This involves selling call options on stocks within the ETF to generate additional income. While this strategy enhances the income potential of the ETF, it does so at the expense of limiting potential share price gains.

To counteract this and aim for higher returns, HDIV incorporates 25% leverage (1.25x exposure). This leverage amplifies both the returns and the yield, but it also introduces a higher level of risk.

HDIV distributes income to its investors monthly, making it an attractive option for those seeking regular passive income streams. As of March 11, the annual yield from HDIV is projected to be 11.39%.

How much HDIV do you need to get $6,000 annually?

Assuming HDIV’s most recent March 7th monthly distribution of $0.151 per share and the current share price at the time of writing of $16.31 remained consistent moving forward, an investor looking for $500 of monthly income ($6,000 annually) would need to buy this much HDIV:


To sum up, 3,312 shares of HDIV at its current price of $16.31 per share works out to an investment of $54,018.72. Again, to receive the full payout, you’ll need to hold this inside of a TFSA to eliminate taxes.

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 Tony Dong 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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