Creating a passive-income stream with monthly payouts might sound challenging, especially if you aim at $600 a month, or $7,200 each year. Yet through exchange-traded fund (ETF) Hamilton Enhanced Multi-Sector Covered Call ETF (TSX:HDIV), this can be a go-to strategy, especially for many Canadian investors seeking stable returns with minimal active management.
HDIV is designed to provide enhanced income by focusing on covered calls and selling call options on assets to generate income while holding a diverse portfolio primarily in financials, technology, and communication services. This fund’s diversified sector mix and income-focused strategy are ideal for investors aiming for consistent monthly cash flow without the hassle of individual stock picking.
The fund
HDIV’s top holdings reveal a well-balanced asset mix, with significant investments in financial services, a sector that accounts for over 55% of the fund’s composition. This sector weighting reflects a strategic approach, as Canadian financial institutions tend to offer steady dividends and are known for resilience, This can help balance the ETF’s monthly distributions. Other sectors, like technology and communication services, diversify the portfolio.
HDIV’s impressive year-to-date (YTD) return of around 24.74% highlights its performance in a positive market environment. Yet this ETF is particularly attractive because of its substantial yield, currently around 10.86%. This translates to regular monthly payouts for investors. This high yield is a result of HDIV’s covered call strategy, where the fund earns premiums from selling options, thereby adding income beyond traditional dividends.
Future outlooks for HDIV and similar covered call ETFs depend largely on market volatility and interest rates. In times of low volatility, income from options may decrease, impacting overall returns. But in higher-volatility markets, covered call strategies can thrive by offering attractive premiums, thereby allowing HDIV to continue distributing monthly income to investors.
Making the cash
The management fees of HDIV, like with many actively managed ETFs, tend to be higher due to the option strategies and frequent adjustments required. However, for investors prioritizing monthly income and passive gains over capital growth, these fees may be justifiable, especially when compared to the returns generated by the fund’s strategy.
So, how much would you need to invest to create that $600 per month? For that, you need to consider the returns as well as dividend income. This is what investors might bring in then within the next year based on past performance.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY | INVESTMENT |
| HDIV – now | $17.75 | 1,130 | $1.93 | $2,180.90 | monthly | $20,057.50 |
| HDIV – 25% | $22.19 | 1,130 | $1.93 | $2,180.90 | monthly | $25,074.70 |
This investment would, therefore, bring in $5,074.70 in returns and $2,180.90 in dividends, totalling $7,198.10 annually, or $599.84 monthly.
Bottom line
Investing in an ETF like HDIV can be a convenient way to generate monthly passive income, especially for those looking to complement other income sources. Its design and focus on covered calls make it unique in the ETF space, offering a blend of income and exposure to key sectors in the Canadian economy. As with any financial decision, understanding the strategy, performance, and risks involved is essential for maximizing benefits, making HDIV work effectively as part of a broader passive income strategy.
