Higher yield means higher income, but also higher risk. When a fund pays out double-digit yields, that usually comes with trade-offs. For example, the share price can slide over time, the payout might get cut, or total returns can lag if the strategy underperforms.
But if you understand those risks and are comfortable with them, even a small Tax-Free Savings Account (TFSA) contribution can generate enough income to cover a night out, or two. Here’s how you could potentially earn up to $83 per month tax-free from a $7,000 TFSA contribution using an advanced Canadian bank exchange-traded fund (ETF) built for income.
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Which ETF to buy?
One option is Global X Enhanced Equal Weight Canadian Banks Covered Call ETF (TSX: BKCL). It’s a mouthful, but the mechanics are simple.
The ETF starts with an equal-weighted portfolio of Canada’s largest banks, tracking the Solactive Equal Weight Canada Banks Index. This means your money is spread evenly across the Big Six banks, rather than being concentrated in just a couple of them based on market size.
Next, the ETF applies 1.25 times leverage. This isn’t the kind of daily-reset leverage used by trading products. Instead, it’s a cash-based margin loan designed to slightly amplify returns and boost income. It’s meant for long-term holders, not day traders.
Finally, BKCL uses a covered call strategy. That means it sells call options on a portion of the portfolio to generate additional income. The trade-off is that you give up some upside during rallies in exchange for collecting higher monthly cash flow.
BKCL income potential
At the time of writing, BKCL trades for $19.66 per share and pays a monthly distribution of $0.235. A $7,000 investment would buy about 356 shares (7,000 ÷ 19.66).
At 356 shares, your monthly income would be $83.46 (356 × 0.235). That works out to a yield of approximately 14.3% if the current distribution holds steady.
The Foolish takeaway
BKCL delivers serious income, but don’t expect the share price to stay flat. The combination of leverage and covered call writing makes it more volatile than traditional dividend ETFs. Covered calls also limit how much the fund can benefit during bull markets. And because it uses leverage, it may drop harder in downturns.
Still, if your goal is high monthly cash flow from a familiar, bank-heavy portfolio and you’re comfortable with some added risk, BKCL offers one of the highest TFSA-eligible payouts on the market today. It gives you access to leverage and derivatives in a liquid, accessible structure that doesn’t require advanced knowledge or trading skills.
