For Canadian retirees, income often becomes more important than growth. While the Canada Pension Plan (CPP) and Old Age Security (OAS) provide a base level of income, they’re rarely enough to fully fund the lifestyle most people want in their golden years.
A well-constructed investment portfolio can supplement these government benefits, helping you cover everyday expenses, travel, hobbies, and unexpected costs without having to dip heavily into your capital.
If you’ve built a decent nest egg, you can use dividend-focused exchange-traded funds (ETFs) to generate a predictable stream of monthly income. Here are two options worth considering.
Dividend ETF
The Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX: VDY) holds around 50 dividend-paying Canadian stocks, with a heavy emphasis on blue-chip financials and energy companies. These are the kinds of businesses that generate consistent cash flow and have a long history of rewarding shareholders with dividends.
Right now, VDY’s 12-month trailing yield sits at 3.92%, comfortably above the current 2.75% risk-free rate. Those payouts are distributed monthly, giving you regular income you can either spend or reinvest.
The fund is cost-effective, charging just a 0.22% management expense ratio (MER). And because most of its payouts are “eligible dividends,” it’s tax-efficient to hold in a non-registered account, thanks to the dividend tax credit. Of course, it also works well in registered accounts like a Tax-Free Savings Account (TFSA) or Registered Retirement Income Fund (RRIF).
REIT ETF
One sector VDY doesn’t include any exposure to is real estate investment trusts (REITs). If you’re comfortable adding more real estate to your portfolio beyond your primary residence or any rental properties you own, the iShares S&P/TSX Capped REIT Index ETF (TSX: XRE) is a decent option.
This ETF gives you instant exposure to 16 of Canada’s largest publicly traded REITs. Its holdings span different property types, including retail, residential, industrial, office, and healthcare real estate. That diversification helps smooth out risk from any single segment of the real estate market.
XRE’s 12-month trailing yield is a higher 5.13%, also paid monthly. However, REIT distributions are not eligible dividends, which means they aren’t as tax-efficient in non-registered accounts. This makes XRE better suited for registered accounts like a TFSA or RRIF, where the income is sheltered from tax.
The MER is higher at 0.61%, reflecting the more specialized nature of the fund, but for investors looking for steady cash flow from real estate, it can be worth the cost.
The Foolish takeaway
Both VDY and XRE can play a role in generating reliable monthly income for Canadian retirees. VDY provides broad exposure to high-quality dividend stocks with favorable tax treatment, while XRE adds real estate diversification and higher yields. Held in the right type of account, these ETFs can help you supplement CPP and OAS, making your retirement income more predictable and sustainable.
