If you want steady monthly income from Canada’s largest financial institutions, one option is to invest in an ETF that focuses exclusively on the sector.
Banking stocks are well known for their consistent dividends, but for investors looking to maximize cash flow, a covered call strategy can provide an extra boost.
The BMO Covered Call Canadian Banks ETF (TSX:ZWB) takes a basket of the big six banks and enhances income by selling call options on a portion of its holdings.
This approach generates additional premium income, increasing the yield, but limits some upside potential in exchange for higher payouts.
Right now, ZWB pays a monthly distribution of $0.11 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 ZWB?
ZWB is built on a simple but effective strategy – it holds equal-weighted positions in Canada’s six largest banks, providing broad exposure to the country’s most dominant financial institutions.
Even without any modifications, these stocks already generate above-average dividend yields, as Canadian banks are well known for their consistent payouts and long-term dividend growth. However, ZWB enhances this income further by using a covered call overlay.
By selling call options on a portion of its holdings, the ETF generates extra premium income, which boosts the yield. The trade-off is that it limits some upside potential, as covered call ETFs sacrifice part of their gains if stock prices rise sharply.
Right now, ZWB has a 0.72% management expense ratio (MER) and offers a 7.1% annualized yield, making it a strong choice for bank investors who prioritize monthly income over long-term capital appreciation.
How Much Do You Need to Buy to Earn $500 a Month?
Since ZWB pays a steady $0.11 per share monthly distribution, calculating how many shares you need to generate $500 per month is straightforward.
Each share of ZWB pays $0.11 per month, which adds up to $1.32 per year ($0.11 × 12 months). To earn $500 monthly, you divide your target income by the per-share monthly payout:
$500 ÷ $0.11 = 4,545 shares
Now that you know you need 4,545 shares, the next step is determining the total cost based on today’s share price. As of March 11, ZWB trades at $18.52. To buy 4,545 shares, you’d need to invest:
4,545 × $18.52 = $84,120.40
That means to earn $500 per month, you’d have to invest approximately $84,120 in ZWB at its current price.
If you’re not holding ZWB in a Tax-Free Savings Account (TFSA) or a Registered Retirement Savings Plan (RRSP), keep in mind that part of the income may be taxed as eligible dividends or return of capital, which can impact your after-tax returns.
