If you’re looking for steady, predictable income, one way to achieve it is by investing in an ETF with a reliable distribution history.
Most individual dividend stocks pay quarterly, and payouts can fluctuate depending on company earnings. Some increase over time, while others may be cut when economic conditions change.
This is where income-focused ETFs like the BMO Canadian High Dividend Covered Call ETF (TSX: ZWC) come in.
ZWC holds a portfolio of high-yielding Canadian dividend stocks but boosts its income further by using a covered call strategy – selling call options on a portion of its holdings to generate additional cash flow.
Right now, ZWC pays a monthly distribution of $0.10 per share. Here’s how many shares you’d need to generate $500 per month in passive income from this ETF.
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What is ZWC?
ZWC is designed to provide enhanced income by holding a portfolio of high-yielding Canadian dividend stocks while using a covered call strategy to generate additional cash flow.
ZWC selects stocks based on dividend yield, dividend growth, and payout ratio, ensuring it holds established Canadian companies with strong track records of paying dividends.
On top of this, it sells covered call options on a portion of its holdings, which generates extra income but comes at a trade-off – it caps some of the fund’s upside potential in exchange for higher, more stable cash flow.
Right now, ZWC has a management expense ratio (MER) of 0.72% and offers a 6.8% distribution yield, with monthly payouts. This makes it an attractive option for income-focused investors who are willing to trade some growth for higher immediate income.
How much do you need to buy to earn $500 a month?
Since ZWC pays a steady $0.10 per share monthly distribution, calculating how many shares you need to generate $500 per month is straightforward.
Each share of ZWC pays $0.10 per month, which adds up to $1.20 per year ($0.10 × 12 months). To earn $500 monthly, you divide your target income by the per-share monthly payout:
$500 ÷ $0.10 = 5,000 shares
Now that you know you need 5,000 shares, the next step is determining the total cost based on today’s share price. As of March 11, ZWC trades at $17.66. To buy 5,000 shares, you’d need to invest:
5,000 × $17.66 = $88,300
That means to earn $500 per month, you’d have to invest approximately $88,300 in ZWC at its current price.
If you’re not holding ZWC in a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP), you’ll need to consider taxes on the distributions. In a non-registered account, some of the income may be classified as eligible dividends or return of capital, which can impact your tax bill.
