Do you want to generate a few hundred dollars’ worth of monthly passive income in your Tax-Free Savings Account (TFSA)?
If so, dividend exchange-traded funds (ETFs) are the way to go.
While there are some individual stocks that pay their dividends monthly, they are few and far between. You wouldn’t want to limit your options with respect to quality and value, just to get a monthly dividend payout. That would be irrational.
With dividend-focused ETFs, monthly payouts are often the rule. Such funds are usually made up of portfolios of quarterly-pay dividend stocks, all having different payout dates. To smooth out the distribution, these funds usually pay a fixed dividend each and every month.
In this article, I’ll explore one dividend ETF you could use to earn considerable monthly passive income in your TFSA. With less than $100,000 invested in this ETF, you could get $250 per month in income — and the fund’s expenses aren’t even all that high.
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BMO Canadian Dividend ETF
BMO Canadian Dividend ETF (TSX:ZDV) is a Canadian dividend fund offered by Bank of Montreal. The fund is built on TSX dividend sectors, such as banking, utilities, and energy. The fund’s overall composition is not that different from broad market TSX funds, focused mostly on Canada’s largest companies. However, it excludes non-dividend TSX stocks, such as Shopify. This fact has held back ZDV’s total returns over the last year or two, but also increased its dividend income. If you want a lot of dividend income in a low-risk package, this fund could be right for you.
Details on the dividend
BMO Canadian Dividend ETF has a distribution of $0.07 per month. That works out to $0.84 per year. At today’s price of $27.09, the aforementioned dividend provides a 3.1% dividend yield. If you invest $96,774 in this fund, you’ll get about $250 back in monthly dividends. See math below.
| COMPANY | RECENT PRICE | NUMBER OF SHARES | DIVIDEND | TOTAL PAYOUT | FREQUENCY |
| BMO Canadian Dividend Fund | $27.09 | 3,572 | $0.07 per month ($0.84 per year) | $250 per month ($3,000 per year) | Monthly |
As you can see, you don’t even need to invest $100,000 in ZDV to get $300 per month back in passive income. And, ZDV is a diversified fund, a portfolio unto itself, so it mitigates much of the risk inherent in trying to pick individual “high-yield” names.
Fund facts
Having explored BMO Canadian Dividend Fund’s dividend facts, it’s time to explore the basic mechanics of the fund.
BMO Canadian Dividend Fund holds 59 stocks, all of which are dividend-paying Canadian large caps. This is a considerable amount of diversification: ZDV has almost as many stocks as the respected TSX 60 index does. The fund also has a relatively low 0.39% management fee and a 0.06% bid-ask spread. The bid-ask spread is maybe a little on the high side but does not indicate severe illiquidity. Overall, investors in ZDV should do well over the long run.
The bottom line
If you want to get rich off dividends, you have a long road ahead of you. But if you’re aiming for a more modest amount, like $250 per month, you can get what you’re after. Investing less than $100,000 in the BMO Canadian Dividend ETF can get you there.
