Do you want to earn decades of passive income without having to research stocks or constantly check your portfolio to make sure something isn’t wrong?
If so, it pays to invest in high-yield exchange-traded funds (ETFs). High-yield ETFs can provide you with all the yield you’d get with an individual high yield stock, but with considerably less risk. ETFs invest in diverse portfolios of stocks, which lowers your risk by “putting your eggs in multiple baskets.” The end result can be a very high portfolio yield with much less risk than you’d face by investing in individual “hot” stocks.
In this article, I will explore one high yield ETF that could add considerable passive income to your portfolio each and every month!
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Vanguard’s high yield Canada ETF
Vanguard FTSE Canadian High Yield Dividend ETF (TSX: VDY) is a Canadian ETF that invests in high yield stocks. The fund pays a $0.16 distribution each month, or $1.92 per year. At today’s unit price of $48.64, VDY’s dividends provide an approximately 3.95% yield — far higher than the TSX Composite Index. And, with VDY’s monthly payout schedule, you get a little bit of passive income coming in each and every month.
High yield
Thanks to VDY’s high dividend yield, it’s possible to get a considerable amount of passive income from it. If you invest $100,000 in it, you get about $3,947 per year, or $329 per month, as the table below shows.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| VDY ETF | $48.64 | 2,056 units costing $100,000. | $0.16 per month ($1.92 per year). | $329 per month ($3,949 per year). | Monthly |
As you can see, you can get a significant amount of monthly income by investing in VDY. And if you hold your shares in a Tax-Free Savings Account (TFSA), the amounts are completely tax-free.
Quality holdings
Of course, you shouldn’t run out and invest all of your money in VDY just because it has a high advertised yield. As always, it’s the quality of the holdings that’s most important, as that factor determines both the total return (before fees) and the sustainable amount of dividend income.
Thankfully, VDY’s holdings do appear to be of some quality. The fund mostly consists of stable, blue-chip TSX stocks. It isn’t investing in questionable penny stocks in order to achieve its yield. That means that the fund’s holdings are fairly safe. Also, the fund holds 54 stocks, so the diversification provides some risk reduction as well.
Reasonable expenses
A final factor that VDY has going for it is reasonable expenses. The fund’s management expense ratio is 0.22%, which means that the management fee and all other expenses combined are only 0.22% of the price of admission each year. That’s a very low fee for a “themed” ETF focused on a specific type of stock.
Foolish takeaway
Taking everything into account, VDY looks to be a good vehicle for Canadian investors to get some extra yield in their portfolios. Cheap, highly diversified and high quality, it has the characteristics of a quality fund.
