Build the Ultimate Passive-Income Portfolio With Just $10,000

Passive-income investors can hold GICs, dividend stocks, and dividend ETFs to create a stable stream of recurring income.

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Investors seeking to create a passive-income stream can do so with just $10,000. In this article, I’ll outline how Canadian investors can begin a low-cost passive-income stream by focusing on diversification to minimize overall risk.

Invest in low-risk, fixed-income products

Canadian investors should consider allocating at least 20% of their funds towards fixed-income products such as Guaranteed Investment Certificates.

Several financial experts advise that your allocation to debt products should be in line with your age. So, a 25-year-old should allocate 25% of total savings toward fixed-income products, while this number would rise to 40% for a 40-year-old investor.

GICs or other debt products are not as risky as equities and are ideal for those with a short-term investment horizon. Here, you lend a certain sum of money to banks, financial institutions, the government, and corporations, who pay you interest on these deposits.

Right now, several Canadian banks offer you a yield of more than 5% on GICs, which is higher than the current inflation rate.

Invest in blue-chip dividend stocks

Investors who have the expertise and time to pick individual stocks can consider creating a portfolio of blue-chip dividend stocks. The ideal dividend stock is one that is positioned to grow its cash flows and earnings at a consistent pace across market cycles, which should translate to higher dividend payouts. In addition to a higher effective yield, investors will also benefit from long-term capital gains in terms of share price appreciation.

One quality TSX dividend stock you can buy now is Brookfield Renewable Partners (TSX:BEP.UN). A clean energy giant, Brookfield Renewable Partners pays shareholders an annual dividend of US$1.42 per share, indicating a forward yield of 5.8%. Moreover, these payouts have risen at an annual rate of over 5% in the last two decades.

Brookfield’s hydro assets account for 47% of energy production, followed by wind at 21%, solar at 16%, and energy storage at 9%. Moreover, around 90% of the power produced by Brookfield is secured by long-term contracts with utilities and large corporations. As these contracts are indexed to inflation, BEP’s cash flows are predictable.

In the last 20 years, BEP stock has returned 300% to shareholders. After adjusting for dividend reinvestments, cumulative returns are much higher at 1,390%. Despite its outsized returns, the TSX dividend stock trades 44% below all-time highs, allowing you to buy the dip.

Invest in dividend-powered ETFs

Investing in low-cost dividend ETFs, or exchange-traded funds, such as iShares Core MSCI Canadian Quality Dividend Index (TSX:XDIV) is a popular strategy among new and experienced investors. ETFs generally hold a basket of stocks across sectors, which diversifies your portfolio and lowers overall risk.

The XDIV ETF has a monthly payout and offers investors a tasty yield of 4.8%. The top holdings of the fund include TSX giants such as Royal Bank of Canada, Suncor Energy, Enbridge, Manulife, and Toronto-Dominion Bank.

The takeaway

A 30-year-old with $10,000 can consider allocating $3,000 to GICs, $2,000 to blue-chip dividend stocks, and $5,000 to monthly dividend ETFs such as XDIV.

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 Brookfield Renewable Partners and Enbridge. The Motley Fool recommends Brookfield Renewable Partners and Enbridge. The Motley Fool has a disclosure policy.

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