My Blueprint for Monthly Income Starting With $40,000

Here’s how I would combine two monthly-paying, high-yield TSX ETFs for passive income.

Key Points
  • A $40,000 TFSA can generate substantial monthly income using modestly leveraged covered call ETFs.
  • HYLD provides U.S. exposure with a 12.27% yield, while HDIV adds Canadian income at about 10.53%.
  • Leverage and options increase risk and fees, so this approach is best suited for income-first investors who understand the trade-offs.

When people think about monthly income, real estate is usually the first thing that comes to mind. But rental income is rarely as passive as it sounds. You have tenant risk, maintenance, vacancies, financing costs, and a lot of ongoing work that shows up at the worst possible time.

If you already have money sitting inside a Tax-Free Savings Account (TFSA), a cleaner path to monthly income is using high-yield exchange-traded funds (ETFs). These are not your plain-vanilla dividend ETFs.

They use strategies like covered calls and leverage to boost cash flow. That extra income comes with more complexity, higher fees, and more risk, but if income is the primary goal, these tools are designed for exactly that.

Here is how I would personally structure a $40,000 TFSA portfolio focused on monthly income, using just two ETFs with decent diversification built in.

dividends grow over time

Source: Getty Images

50% in U.S. stocks

The first building block is Hamilton Enhanced U.S. Covered Call ETF (TSX: HYLD). This ETF is a fund of funds. Instead of owning individual stocks directly, it holds a basket of Hamilton’s YIELD MAXIMIZER covered call ETFs.

Those underlying funds span broad U.S. equities as well as sectors like technology, financials, healthcare, energy, gold producers, and real estate investment trusts. The goal is to roughly mirror the sector mix of the S&P 500, but with an income-first approach.

HYLD generates income primarily by selling covered call options on its holdings. In simple terms, it gives up some upside potential in exchange for an immediate option premium, which is paid out to investors as monthly income. Because of this structure, you should not expect strong price appreciation. Most of the return is delivered in cash distributions.

Leverage is the second income lever. For every $100 in assets, HYLD borrows about $25, resulting in 1.25x or 125% exposure. This magnifies both income and risk. In strong or sideways markets, it can enhance returns. In sharp downturns, losses are also amplified.

At current levels, HYLD pays a distribution yield of about 12.27%, with monthly payouts. Allocating $20,000 to this ETF would generate meaningful U.S. dollar exposure and a large portion of the portfolio’s income.

50% in Canadian stocks

To balance the U.S. exposure, the second half of the portfolio goes into Hamilton Enhanced Canadian Covered Call ETF (TSX: HDIV). HDIV uses a similar structure to HYLD, but it focuses entirely on Canadian equities.

It also holds a basket of Hamilton YIELD MAXIMIZER ETFs and applies covered call strategies across the portfolio. Because of Canada’s market structure, the sector mix skews heavily toward financials and utilities, with meaningful exposure to energy and gold as well.

Like HYLD, HDIV employs leverage at approximately 1.25 times. The combination of leverage and covered call income allows it to generate a high monthly distribution, but it also means investors need to be comfortable with higher volatility and drawdowns during market stress.

At current levels, HDIV pays a distribution yield of about 10.53%, again with monthly payouts. A $20,000 allocation provides Canadian dollar income and diversifies the income sources away from just one market.

Fool contributor Tony Dong has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

More on Dividend Stocks

Person holding a smartphone with a stock chart on screen
Dividend Stocks

For BCE vs. Enbridge, a 5.7% Yield vs. 5.9% (And the One I’d Prefer for Income)

Both BCE and Enbridge offer attractive income, but BCE is a higher-risk turnaround opportunity, whereas Enbridge offers a more predictable…

Read more »

man shops in a drugstore
Dividend Stocks

How Much to Invest in RioCan for $300 a Month in Dividends

How much should you invest in RioCan for $300 a month in dividends? Explore its retail business, monthly payout and…

Read more »

A close up color image of a small green plant sprouting out of a pile of Canadian dollar coins "loonies."
Dividend Stocks

Telus Dividend Safety: Is the Stock Still Worth Buying for Income?

Explore the latest insights on Telus dividend amid a challenging earnings report and management's new Transformation Strategy.

Read more »

voice-recognition-talking-to-a-smartphone
Dividend Stocks

BCE Just Reported: What $10,000 Could Earn You in Dividends Today

BCE is yielding a very generous 5.2%, as the company's telecom business improves and long-term investments drive growth.

Read more »

Transparent umbrella under heavy rain against water drops splash background. Rainy weather concept.
Dividend Stocks

Is Intact’s Rough Quarter a Blip or the New Normal for Canadian Insurers?

Intact reported $660 million in pre-tax catastrophe losses during the quarter, which dragged its net operating income per share lower.

Read more »

investor faces bear market
Dividend Stocks

How Much to Invest in BCE for $1,500 a Year in Dividends

BCE (TSX:BCE) could be a huge dividend value winner as the stock markets correct and potentially flirt with a bear…

Read more »

diversification is an important part of building a stable portfolio
Dividend Stocks

Want $6,000 a Year From Your TFSA? Here’s the Portfolio Size to Aim for

A $150,000 starting target can support a $6,000 annual TFSA income goal without requiring an extreme yield.

Read more »

top TSX stocks to buy
Dividend Stocks

Hot Take: The Best Monthly Dividend Stock on the TSX Right Now

For investors seeking monthly dividend payments, this REIT has a history of consistent dividend payments across different market conditions, along…

Read more »