Are you a Canadian looking to create a practical investment program that generates reliable passive income streams? Investing in a diversified portfolio of high-quality TSX dividend stocks with established track records could be an option. Small regular investments in a curated portfolio of financially strong dividend payers could transform a $500 monthly investment into a $266 annual passive income stream during the remainder of 2024, setting you well on a path towards attaining long-term retirement income goals.
Speaking of retirement planning in Canada, your goals may include preserving capital and building a low-to medium-risk core portfolio that generates recurring income, each month, while appreciating in capital value – preferably.
Canadian dividend Exchange-Traded Funds (ETFs) offer curated portfolios that suit various income investing strategies, and the iShares Core MSCI Canadian Quality Dividend Index ETF (TSX:XDIV) is one of the best income-investing examples that turn small regular investments into diversified retirement portfolios which generate reliable passive income streams.
iShares Core MSCI Canadian Quality Dividend Index ETF (XDIV): A core investment holding for passive income
The iShares Core MSCI Canadian Quality Dividend Index ETF is a growing medium-risk-rated investment fund that has accumulated more than $1.1 billion in assets under management (AUM) since its inception in 2017. Managed by BlackRock, the low-cost ETF provides access to a curated portfolio of 17 Canadian dividend stocks with above-average dividend yields and steady or increasing regular dividend payouts. It provides instant diversification to new investors and has quickly become a formidable high-dividend yield ETF to hold in core portfolios.
The XDIV ETF invests in high-quality Canadian dividend stocks with strong financial performance, solid balance sheets, and stable annual earnings that pay increasing or stable dividends. Its dynamic portfolio pays monthly dividends of $0.13 per share, currently yielding a little above 6% annually.
Its largest holdings currently include Suncor Energy at 10.4%, followed by Pembina Pipeline stock at 9.7%, and the Royal Bank of Canada (RBC) stock, which comprises 9% of the XDIV ETF portfolio. Around this time last year, the portfolio’s $823 million in AUM was allocated 9.3% in Manulife Financial Corp stock, and 9.2% in each of Sun Life Financial stock and RBC stock as top holdings.
Diversification has improved over the past 12 months as financial sector stocks, which used to dominate the ETF with a 51.8% portfolio weight a year ago, gave up some space to other sectors. Financials comprise 41.5% of the ETF today, followed by energy stocks at 24.1% and utilities at 17.1%.
Invest in a low-cost ETF for growth and high-yield passive income
The XDIV is a low-cost ETF with a management expense ratio (MER) of 0.11%. Investors should expect to pay about $1.10 per every $1,000 invested in the ETF, or just $0.55 on each $500 investment, every year. The ETF’s low-cost profile minimizes investment expenses’ drag on wealth and income growth.
Most of the ETF’s holdings pay dividends quarterly. However, the ETF pays monthly dividends to its investors. The fund transforms quarterly dividends into monthly passive income streams – a key service that smoothens portfolio cash flow streams at a significantly low cost.
Besides providing regular and growing dividends to investors, the XDIV ETF has been a source of capital gains too. Shares have steadily gained in value since inception to provide capital appreciation to investors.
Historically, the ETF has generated total returns averaging 8.9% per annum since its inception. That’s enough to double investors’ capital in just over eight short years – the Rule of 72 estimates.
How to invest $500 each month to create $266 in annual dividend income
To create a passive income stream of $266 annually during the remainder of 2024, invest approximately $500 before the dividend record dates for each month in the XDIV ETF to buy 19 shares every month, starting right now.
Before you know it, you could have built a $4,500 position by December that may generate $111 in dividends this year and more than $266 passive income next year, as shown in the table below.
Repeat the monthly investment program every year to build a large dividend portfolio that generates regular income every month.
The XDIV ETF is eligible for investment as a core holding in a registered or privately held portfolio. Investors may also add growth stocks around the core holding to diversify and build a formidable retirement fortress.
