How to Build a Monthly Passive-Income Portfolio in Retirement With Just $7,000

This monthly paying dividend stock is one of the best ways to create a passive income portfolio in retirement. It’s never too late!

| More on:
A golden egg in a nest

Image source: Getty Images.

It’s never too late to start investing. But the closer you come to retirement, the more the strain can certainly weigh on you. Saving for retirement may seem like a huge burden these days, with inflation and interest rates causing even more pressure on retirees.

However, as mentioned, it’s never too late. So let’s say you’re a retiree just getting started, one that wants to use the additional contribution room in their Tax-Free Savings Account (TFSA) of $7,000 each year to invest.

From there, your goal is to create a passive income portfolio that can pay out each month. Here is exactly what I would consider.

Get a monthly dividend ETF

If you want a safe and secure way of creating passive income long term, then I would certainly look to a monthly dividend exchange traded fund (ETF). A monthly dividend ETF distributes dividends on a monthly basis, providing investors with a regular income stream. This can be advantageous for retirees who rely on consistent income to cover living expenses.

These ETFs typically hold a diversified portfolio of dividend-paying stocks or other income-generating assets. By investing in an ETF, investors gain exposure to a broad range of companies across various sectors, reducing the risk associated with holding individual stocks.

Furthermore,  ETFs often have lower management fees compared to actively managed funds, which can eat into investment returns over time. With $7,000 per year to invest, minimizing fees is crucial to maximize the growth of an investment portfolio.

Finally, in a TFSA you’ll have even more tax advantages. Canadian dividend ETFs may offer tax advantages, as Canadian dividend income is eligible for the dividend tax credit, which can result in lower taxes for investors compared to interest income from bonds or savings accounts. And you can use that extra cash to reinvest it back into the ETF itself.

Putting it to work

If you’re looking for a strong monthly passive income ETF, in this case, one Canadians will want to consider is the iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI). This ETF is the perfect option with a dividend yield at 5.4% and shares up 6% year to date as of writing.

The XEI ETF seeks to provide long-term capital growth by investing primarily in a diversified portfolio of Canadian dividend-paying stocks. It aims to track the performance of the S&P/TSX Equity Income Index. The underlying index is designed to measure the performance of 50 high dividend-yielding Canadian companies. These companies are selected based on their dividend yield, dividend growth rate, and payout ratio.

Some benefits of this ETF include that it offers investors exposure to a broad range of Canadian companies across various sectors, including financials, utilities, telecommunications, energy, and industrials. This diversification helps reduce concentration risk associated with holding individual stocks. And as its passively managed, you can get a dividend-focused ETF while still keeping commission fees low.

Bottom line

So what sort of returns could you see from this ETF? Let’s say you put that $7,000 into the ETF now and it rises by another 6%. Here is what that might look like.

XEI – now$25.75272$1.44$391.68monthly$7,000
XEI – 6%$27.29272$1.44$391.68monthly$7,422.88

In total, you could be creating $391.68 in dividend income and $422.88 in returns. That’s total passive income of $814.56 in just a year! Which can compound and build each and every year you hold it.

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 Amy Legate-Wolfe 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.

More on Dividend Stocks

calculate and analyze stock
Dividend Stocks

4 Fabulous Dividend Stocks to Buy in July

Are you looking for long-term income? These four dividend stocks should not only provide you with value in July but…

Read more »

financial freedom sign
Dividend Stocks

5 Steps to Financial Freedom for Canadian Millennials

Follow these steps and nothing can stop Canadian millennials from achieving their early retirement dreams.

Read more »

Investor wonders if it's safe to buy stocks now
Dividend Stocks

We’re Only Getting Older: A Top TSX Stock That Benefits From an Aging Population

For a bet on the aging population, consider this small-cap stock with growth potential.

Read more »

Growing plant shoots on coins
Dividend Stocks

Yield Today, Growth Tomorrow: 3 Stocks to Keep Building Your Wealth

For investors seeking yield today and growth tomorrow, these top Canadian dividend stocks are certainly worth considering right now.

Read more »

Payday ringed on a calendar
Dividend Stocks

This 10.72% Dividend Stock Pays Cash Every Month

This dividend stock remains a consistent, defensive dividend producer that will give up over 10% in income each and every…

Read more »

Blocks conceptualizing Canada's Tax Free Savings Account
Dividend Stocks

TFSA Investors: 2 Standout Domestic Stocks With 7% Yields

These top dividend-growth stocks look oversold.

Read more »

Dividend Stocks

2 Dividend Stocks to Double Up on Right Now

Despite their recent declines, the long-term growth outlook of these two top dividend stocks remains strong, which could help their…

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Growth Stocks vs. Value Stocks: Which Should You Choose?

There are growth stocks and value stocks, but there are also growing value stocks that fit into both sides of…

Read more »