How to Build the Most Powerful Passive-Income Portfolio With $20,000

If you’re wondering how to get immediate, safe income, consider these two options right away.

| More on:

Building a passive-income portfolio can provide significant long-term financial security for Canadians. By investing in dividend-paying stocks, exchange-traded funds (ETF), and bonds, you can generate consistent income without having to sell your investments. For example, a study by RBC Wealth Management found that reinvesting dividends can account for up to 33% of total equity returns over time. By focusing on compounding and regular income, Canadians can effectively grow their wealth while enjoying steady passive-income streams during retirement.

Where to look

When it comes to sectors that provide the most long-term strength for passive income, utilities and financials are top contenders. Utility companies, like those involved in electricity, water, and natural gas, offer stable revenues because people consistently need these services, regardless of economic conditions. These companies often pay reliable dividends. The financial sector, particularly Canadian banks, is also known for its dividend strength. Canadian banks have a history of dividend growth, providing income-seeking investors with stability and growing returns over the years.

The real estate sector is another solid option for long-term passive income. Real estate investment trusts (REITs) allow investors to access the benefits of real estate without direct property management. REITs must pay out most of their income as dividends, making them a great source of passive income. Investing in sectors like utilities, financials, and real estate gives Canadians a diversified approach to building a strong and stable passive-income portfolio.

Get it all

BMO Covered Call Utilities ETF (TSX:ZWC) is an excellent choice for passive-income investors wanting in on it all. This ETF focuses on utility companies and enhances income through covered call options. With a current yield of around 6.85% at writing, ZWC offers an attractive return. Ideal for investors looking to benefit from stable sectors like utilities. The covered call strategy adds an extra layer of income by selling options on stocks in the portfolio. This can generate additional income in a flat or mildly rising market.

In addition to the high yield, ZWC provides exposure to well-established Canadian utility companies. These companies are known for their reliable revenue streams, making the ETF less volatile than others. By investing in ZWC, Canadians can enjoy both capital preservation and the higher income generated from the covered call strategy, making it a great option for long-term income.

Select dividends

iShares Core MSCI Canadian Quality Dividend Index ETF (TSX:XDIV) is another excellent investment for passive income. XDIV focuses on high-quality, dividend-paying Canadian stocks, offering a yield of around 4.58% at writing. The ETF is designed to track the performance of the top 30 dividend-paying companies in Canada. Thus making it a solid choice for those looking to invest in blue-chip stocks with strong, consistent dividends.

XDIV’s holdings include major Canadian banks, utilities, and energy companies, all sectors that have historically provided stable returns. With its focus on dividends and blue-chip stocks, XDIV allows investors to benefit from capital growth and passive income. Thus making it a reliable long-term investment. The combination of solid yield and dividend-growth potential makes XDIV a great option for Canadians looking to enhance their passive-income portfolios.

Bottom line

So, let’s say you put $10,000 towards both of these ETFs right now. Here is what that could create in dividends this year alone!

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCYPORTFOLIO TOTAL
ZWC$17.90559$1.20$670.80monthly$10,000
XDIV$28.88346$1.27$439.42monthly$10,000

That’s right; you can add another $1,110.22 in dividend income! Investing in a passive-income portfolio is a smart long-term strategy for Canadians, especially when diversified across strong sectors like utilities and financials. With options like BMO Covered Call Utilities ETF (ZWC) and iShares Canadian Select Dividend ETF (XDIV), these ETFs allow for steady income with the potential for capital growth. By balancing high dividends with stable sectors, Canadians can create a reliable financial cushion for the future.

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 positions in Bmo Canadian High Dividend Covered Call ETF. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

A glass jar resting on its side with Canadian banknotes and change inside.
Dividend Stocks

4 Under-$20 Dividend Stocks Perfect for Income Investors

Given their solid underlying businesses and high yields, these four under-$20 dividend stocks are ideal for income-seeking investors.

Read more »

grow money, wealth build
Dividend Stocks

Act Now: 1 Top Stock and 1 REIT Offering 8% Yields for Canadian Investors

Slate Grocery REIT (TSX:SGR.UN) and another top ultra high-yielder that looks worth picking up!

Read more »

woman looks at iPhone
Dividend Stocks

1 Canadian Stock to Buy and Hold Forever in Your TFSA

This Canadian stock offers perhaps the most value and best long-term outlook for any investor looking to buy and hold…

Read more »

TFSA (Tax free savings account) acronym on wooden cubes on the background of stacks of coins
Dividend Stocks

Top TFSA Stocks for Canadian Investors to Buy Now

Here’s why TFSA investors should buy and hold high-quality stocks in their self-directed, tax-sheltered accounts for the long run.

Read more »

Women's fashion boutique Aritzia is a top stock to buy in September 2022.
Dividend Stocks

Is Dollarama Stock A Buy, Sell, or Hold for 2025?

Canada’s leading dollar store retail chain could give you the best value for your money in 2025.

Read more »

shoppers in an indoor mall
Dividend Stocks

Here Are My Top 3 Real Estate Stocks to Buy Now

With interest rates likely to keep dropping, three real estate stocks are strong buys for income-focused investors.

Read more »

Person holding a smartphone with a stock chart on screen
Dividend Stocks

2 Canadian Dividend Stocks to Buy Heading Into 2025

These stocks offer high yields and could be undervalued right now.

Read more »

happy woman throws cash
Dividend Stocks

Invest $7,000 in This Dividend Stock for $1,100 in Passive Income

While traditional dividend stocks can help you build passive income, this stock can earn you $1,000 in annual dividends and…

Read more »