Figuring out your dividend income is much easier when an investment has a history of steady payouts. Most stocks pay dividends quarterly, with the amount fluctuating based on earnings and board decisions. Ideally, they increase their payout over time, but there’s no guarantee.
Some exchange-traded funds (ETFs), like BMO Monthly Income ETF (TSX: ZMI), operate differently. ZMI follows a structured distribution policy, meaning it aims to provide a consistent payout, even if underlying holdings fluctuate.
For ZMI, that currently means a monthly distribution of $0.07 per share—like clockwork. Here’s what you need to know about how many shares you’d need to generate $500 in monthly income.
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What is ZMI?
ZMI is an ETF of ETFs, meaning it holds eight other BMO ETFs, all of which are tailored for income generation. It’s designed for maximum diversification, spreading investments across multiple asset classes and regions.
The fund’s largest allocation is 24.6% in Canadian corporate bonds, which are debt securities issued by stable Canadian companies, offering steady interest payments. It also has 19.45% in U.S. dividend stocks, providing exposure to established American companies known for consistent payouts.
Another 14.93% is in global dividend stocks with covered calls, meaning the ETF generates extra income by selling options on international stocks. It holds 13.28% in Canadian dividend stocks, ensuring exposure to reliable domestic payers.
On the fixed-income side, 10.52% is in U.S. corporate bonds, offering higher yields than government bonds but with more risk. There’s also 7.2% in international dividend stocks, broadening geographic diversification.
Rounding out the portfolio, 4.98% is in U.S. preferred shares, which provide hybrid equity and bond-like income, and 4.96% is in U.S. covered call and cash-secured put strategies, boosting income through options premiums.
All this diversification comes at a competitive 0.20% management expense ratio (MER), and right now, ZMI is yielding 4.8% annually, with monthly payouts.
How much do you need to buy to earn $500 a month?
The math is straightforward, thanks to ZMI’s steady $0.07 per share monthly distribution. Since the payout is fixed, you can calculate exactly how many shares you need to generate $500 per month.
Each share of ZMI pays $0.07 per month, which adds up to $0.84 per year ($0.07 × 12 months). To earn $500 monthly, you divide your target income by the per-share monthly payout: $500 ÷ $0.07 = 7,143 shares
Now that you know you need 7,143 shares, the next step is calculating how much that investment would cost at today’s price. As of March 11, each ZMI share trades at $17.58. To buy 7,143 shares, you’d need to invest: 7,143 × $17.58 = $125,553.94
That means to earn $500 per month, you’d have to invest about $125,554 in ZMI at its current price.
If you’re not holding ZMI in a Tax-Free Savings Account or a Registered Retirement Savings Plan, you’ll need to account for taxes on the distributions. In a non-registered account, part of the income may be taxed as dividends, interest, or return of capital, which can affect how much you actually take home.
