Anytime you see an funding promoting a 15% or greater yield, you need to deal with it with warning. Normally, it’s both a Ponzi scheme or an organization heading for hassle. Even when the payout sticks round for some time, there’s usually a hidden value, like a crumbling share value, unsustainable payout ratios, or a sudden reduce when situations change. There’s no free lunch.
If you happen to’re aiming for regular, sustainable earnings, a 5% to eight% yield is a a lot safer goal. And there’s no have to guess on particular person dividend shares to get there. A well-constructed exchange-traded fund (ETF) can provide you broader diversification, much less single-company threat, and common month-to-month payouts.
Right here’s how I’d use a $7,000 Tax-Free Financial savings Account (TFSA) contribution in 2025 to generate as much as $32 per thirty days in tax-free earnings, utilizing one Canadian financial institution ETF as the muse.
Why I like this ETF
Hamilton Enhanced Canadian Financial institution ETF (TSX:HCAL) provides you publicity to Canada’s largest banks utilizing a sensible structural twist.
It tracks the Solactive Equal Weight Canada Banks Index, which suggests your cash is unfold evenly throughout the sector—no single financial institution will get outsized affect simply due to its measurement. Equal-weighting helps easy out efficiency and naturally rebalances to purchase low and promote excessive.
What units HCAL aside is its use of modest 1.25 occasions leverage, not by way of derivatives, however by borrowing money, just like a margin mortgage. Not like leveraged ETFs designed for day buying and selling, HCAL’s leverage will not be reset day by day.
It’s designed for long-term buyers and permits the fund to amplify each earnings and complete return with out dramatically rising threat. That construction is what helps push the yield up whereas nonetheless holding high-quality, dividend-paying Canadian banks.
How a lot earnings?
On the time of writing, HCAL trades round $27.90 per share and pays a month-to-month distribution of $0.127 per share. If you happen to make investments $7,000, you should purchase roughly 250 shares of the ETF (7,000 ÷ 27.90).
Every month, these 250 shares would generate a distribution of $31.75 (250 × 0.127). That works out to an annual complete of $381, or a yield of roughly 5.44% primarily based on the $7,000 invested.
The perfect half? In a TFSA, that complete $31.75 month-to-month earnings is tax-free, which means you retain each greenback. And if HCAL’s underlying financial institution holdings proceed to lift dividends over time, as they traditionally have, there’s additionally the potential for these month-to-month payouts to develop.
It’s an easy, diversified strategy to put your TFSA to work and create a gentle earnings stream with out reaching for dangerous or overly advanced methods.