Starting with $7,000 is a great way to kick off a portfolio that puts cash in your pocket every month. If I just started investing, my focus would be on building a low-maintenance, diversified stream of income using exchange-traded funds (ETFs). These investment vehicles offer instant diversification and monthly payouts without requiring me to constantly watch the markets.
Step 1: Lock in real estate income through REIT ETFs
Canadian Real Estate Investment Trusts (REITs) are among the most reliable sources of monthly income. A simple way to access them is through the iShares S&P/TSX Capped REIT Index ETF (TSX:XRE). This ETF holds 15 REITs across residential, retail, and industrial sectors, and it currently yields around 5%. While the management expense ratio (MER) is 0.61%, it offers a hands-off way to gain exposure to names like Canadian Apartment Properties REIT, Choice Properties, and Granite REIT.
However, here’s the catch: the fund’s 10-year rate of return sits at just 3.2%, highlighting that chasing yield alone can be a trap. Capital preservation and growth also matter. So rather than going all-in at once, I’d consider dollar-cost averaging — buying gradually over time to smooth out volatility and potentially scoop up units at better prices.
Step 2: Tap into utilities for stability and yield
Next, I’d allocate a portion of the $7,000 to another sector known for consistent dividends: utilities. While most Canadian utility stocks pay quarterly, there’s a smart workaround – iShares S&P/TSX Capped Utilities Index ETF (TSX:XUT). This ETF provides exposure to 15 utility companies and pays a monthly cash distribution, currently yielding about 4.4%.
Its top holdings – Fortis, Brookfield Infrastructure Partners L.P., Emera, Hydro One, and Altagas – are known for essential services and defensive business models. With a 10-year rate of return of 7.4%, XUT has not only delivered income but also reasonable total returns.
That said, after a 30%-plus rally from 2024 lows, I’d be cautious and perhaps wait for a pullback – or again, use a dollar-cost averaging approach.
Step 3: Blend passive and active for flexibility
ETFs are fantastic for passive investing, but for those willing to be a bit more hands-on (like me), there’s opportunity in cherry-picking individual stocks from within these ETFs. For example, buying Fortis or Granite REIT directly during market dips can result in higher effective yields and potential capital gains.
To wrap it up, with $7,000, I’d likely split the portfolio 50/50 between XRE and XUT for monthly income. Currently, though, XRE probably offers better value. Investors might invest half a position in it for $1,750 and dollar-cost average with the remaining $1,750 over the next months. Then, for XUT, investors could either wait for a pullback or dollar-cost average into it over the next year, implying investing $291 and change per month.
You can also keep an eye out for bargain prices on individual names. Over time, reinvesting distributions and selectively adding on weakness can meaningfully grow both your income and wealth.
Building a reliable monthly dividend portfolio isn’t just about chasing the highest yields – it’s about creating a steady, growing income stream with discipline and a long-term mindset.
