Anytime you see an investment advertising a 15% or higher yield, you should treat it with caution. In most cases, it’s either a Ponzi scheme or a company heading for trouble. Even if the payout sticks around for a while, there’s often a hidden cost, like a crumbling share price, unsustainable payout ratios, or a sudden cut when conditions change. There’s no free lunch.
If you’re aiming for steady, sustainable income, a 5% to 8% yield is a much safer target. And there’s no need to bet on individual dividend stocks to get there. A well-constructed exchange-traded fund (ETF) can give you broader diversification, less single-company risk, and regular monthly payouts.
Here’s how I’d use a $7,000 Tax-Free Savings Account (TFSA) contribution in 2025 to generate up to $32 per month in tax-free income, using one Canadian bank ETF as the foundation.
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Why I like this ETF
Hamilton Enhanced Canadian Bank ETF (TSX: HCAL) gives you exposure to Canada’s largest banks using a smart structural twist.
It tracks the Solactive Equal Weight Canada Banks Index, which means your money is spread evenly across the sector—no single bank gets outsized influence just because of its size. Equal-weighting helps smooth out performance and naturally rebalances to buy low and sell high.
What sets HCAL apart is its use of modest 1.25 times leverage, not through derivatives, but by borrowing cash, similar to a margin loan. Unlike leveraged ETFs designed for day trading, HCAL’s leverage is not reset daily.
It’s designed for long-term investors and allows the fund to amplify both income and total return without dramatically increasing risk. That structure is what helps push the yield up while still holding high-quality, dividend-paying Canadian banks.
How much income?
At the time of writing, HCAL trades around $27.90 per share and pays a monthly distribution of $0.127 per share. If you invest $7,000, you can purchase roughly 250 shares of the ETF (7,000 ÷ 27.90).
Each month, those 250 shares would generate a distribution of $31.75 (250 × 0.127). That works out to an annual total of $381, or a yield of roughly 5.44% based on the $7,000 invested.
The best part? In a TFSA, that entire $31.75 monthly income is tax-free, meaning you keep every dollar. And if HCAL’s underlying bank holdings continue to raise dividends over time, as they historically have, there’s also the potential for those monthly payouts to grow.
It’s a straightforward, diversified way to put your TFSA to work and create a steady income stream without reaching for risky or overly complex strategies.
