Build a Lucrative Passive-Income Portfolio With $50,000

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

Key Points
  • ETFs can replace hands-on rental income with fully passive monthly cash flow inside a TFSA.
  • Covered calls and leverage drive high yields but cap upside and increase downside risk and fees.
  • This portfolio is designed for income-first investors, not for maximizing long-term capital growth.

When people talk about “passive income,” rental property is usually the first idea that comes up. On paper, it sounds simple. You buy a property, collect rent every month, and let someone else pay down the mortgage.

In reality, rental income is closer to a second part-time job than a hands-off investment. You’re dealing with tenants, vacancies, repairs, insurance, property taxes, financing risk, and local regulations. Even if you hire a property manager, that cost comes straight out of your returns, and major issues still tend to land on your desk.

Taxes add another layer of friction. Rental income is fully taxable, capital gains aren’t sheltered, and depreciation strategies often just defer taxes rather than eliminate them. For many investors, especially those already maxing out a Tax-Free Savings Account (TFSA), there’s a far simpler way to generate monthly cash flow without the operational headaches.

High-yield exchange-traded funds (ETFs) offer a cleaner alternative. Instead of managing physical assets, you own diversified portfolios of stocks that use tools like covered calls and modest leverage to generate income.

These aren’t traditional dividend ETFs, and there’s no free lunch. Higher yields come with higher fees, capped upside, and more volatility. But if your goal is a steady monthly income inside a TFSA, they can do exactly what rental properties promise, without turning investing into a second job.

Canadian Dollars bills

Source: Getty Images

50% in Canadian stocks

The first building block is Hamilton Enhanced Canadian Covered Call ETF (TSX: HDIV).

HDIV is a fund of funds that holds a basket of Hamilton’s YIELD MAXIMIZER covered call ETFs, all focused on Canadian equities. The underlying exposure spans banks, utilities, energy companies, gold producers, and other core sectors of the Canadian market.

Income is generated primarily through covered calls. The ETF sells call options on its holdings, trading away some upside potential in exchange for option premiums that are paid out as monthly distributions. This structure means total returns are heavily skewed toward income rather than price appreciation.

HDIV also uses leverage. For every $100 of investor capital, the fund borrows roughly $25, resulting in about 1.25x exposure. That leverage amplifies income, but it also increases downside risk during market drawdowns.

At current levels, HDIV pays a distribution yield of 10.57%, with monthly payouts. Allocating $25,000 to HDIV provides a strong base of Canadian dollar income and meaningful exposure to Canada’s dividend-heavy sectors.

50% in U.S. stocks

To balance the home-country exposure, the other half of the portfolio goes into Hamilton Enhanced U.S. Covered Call ETF (TSX: HYLD).

Like HDIV, HYLD is a fund of funds. Instead of holding individual stocks, it owns a collection of Hamilton’s U.S.-focused YIELD MAXIMIZER ETFs. These underlying funds cover broad U.S. equities and major sectors such as technology, financials, healthcare, energy, gold producers, and real estate investment trusts.

The goal is to roughly mirror the sector makeup of the S&P 500, but with an income-first mandate. Covered calls are written across the portfolio, generating option premiums that are distributed to investors monthly. As a result, upside is capped, and returns are primarily delivered through cash flow.

HYLD also employs approximately 1.25x leverage, which boosts income but increases volatility. This structure tends to work best in flat or moderately rising markets and can struggle during sharp equity selloffs.

At current levels, HYLD pays a distribution yield of 12.44%, again with monthly payouts. A $25,000 allocation adds U.S. dollar income and diversifies the portfolio away from a single market and currency.

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.

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