When it comes to building passive income in the stock market, one of the biggest challenges investors face right now is actually finding stocks and ETFs to buy with a high enough yield without taking on unnecessary risk.
While there are plenty of high-quality stocks on the TSX, many of the safest and most reliable businesses don’t actually offer that much income on their own. And that’s where a lot of investors run into problems.
It can certainly be tempting to start chasing higher-yielding stocks just to boost the income your portfolio generates. However, that’s not an adequate strategy or solution.
Instead, one of the best ways to increase your passive income without taking on too much risk is by using ETFs to gain exposure to entire sectors, especially ones that are already known for generating steady cash flow.
And right now, one of the best Canadian ETFs that does exactly that is the BMO Equal Weight REITs Index ETF (TSX:ZRE).
With a yield of roughly 4.6% today, the ZRE offers a simple way to gain exposure to some of the best income-producing real estate stocks in Canada, all in one investment.
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Why the ZRE is one of the best high-yield income ETFs on the TSX
There are many reasons why the ZRE is such a reliable ETF to buy for passive income seekers, but the main reason comes down to the reliable assets it offers exposure to and the cash flow that those assets generate.
Since the ZRE ETF owns a diversified portfolio of Canadian REITs, which own assets like apartments, shopping centres, office buildings, and industrial properties, investors gain exposure to businesses that generate consistent rental income from tenants.
That’s exactly why real estate has long been one of the most reliable sectors for income investors. But what really makes the ZRE stand out compared to other REIT ETFs is its equal-weight structure.
Instead of allocating a huge portion of the fund to just a few of the largest REITs, the ZRE spreads its investments more evenly across the entire sector.
That’s important because it helps improve diversification and reduces the risk of one or two large holdings having too much impact on the overall performance of the ETF.
In addition, it also gives you better exposure to smaller and mid-sized REITs that may have more growth potential compared to the biggest names in the sector.
So not only are you getting steady income from a wide range of real estate assets located all across Canada, but you’re also building a more balanced and diversified portfolio at the same time.
Why the ZRE is an ideal income investment right now
On top of its diversification, another big advantage of the ZRE is that it pays distributions monthly.
And while you should never buy an investment solely for how often it pays, receiving income every month can make a big difference, especially if you’re reinvesting those distributions.
Because the more frequently you’re able to reinvest your income, the faster that compounding can start to work in your favour. But beyond just the income itself, even more importantly, is the opportunity the ZRE offers today.
For the last few years, REITs across the board have been under pressure due to higher interest rates, which increased borrowing costs and weighed on valuations across the sector.
However, as interest rates continue to stabilize and decline over time, that pressure has started to ease. But while many REITs remain undervalued, that’s what makes the ZRE particularly attractive right now.
Because you’re not just buying a high-quality income ETF, you’re also getting exposure to a sector that still has the potential to recover as conditions improve. Furthermore, you’re also locking in a higher yield than normal when you buy the ETF while it’s undervalued.
So, if you’re looking for a simple way to boost your passive income while gaining exposure to a high-quality and historically reliable sector, the ZRE is easily one of the best Canadian ETFs to consider right now.
