November 21, 2024
This Simple Dividend ETF Could Turn 0 a Month Into a ,000 TFSA #NewsETFs

This Simple Dividend ETF Could Turn $500 a Month Into a $77,000 TFSA #NewsETFs

CashNews.co

Written by Brian Paradza, CFA at The Motley Fool Canada

Looking to build a substantial investment portfolio but think you need a large sum to start? Here’s some encouraging news: With just $500 in monthly contributions, Canadian investors can use top dividend exchange-traded funds (ETFs) to potentially grow a Tax-Free Savings Account (TFSA) portfolio to over $77,000 in 10 years while generating meaningful monthly dividend income streams. Let’s explore how this achievable investment strategy works.

The key to building a decent TFSA account balance that generates dependable monthly passive income is starting early and remaining consistent. By investing $500 each month in your TFSA, you’ll be contributing $6,000 annually – well within the annual TFSA contribution limits. While this adds up to $60,000 in direct contributions over a decade, the power of compound returns could help grow your portfolio to more than $77,000, thanks to dividend reinvestment.

Canadian dividend ETFs can make your investing journey easier. Rather than trying to personally pick individual stocks, consider buying the iShares S&P/TSX Composite High Dividend Index ETF (TSX:XEI). This established fund, managed by BlackRock – the world’s largest ETF provider – offers broad diversification across 76 Canadian dividend-paying stocks.

The ETF is designed to fit well into a long-term focused dividend-investment program. With a strong track record since its 2011 inception, investors have poured more than $1.7 billion of capital into the low-cost, moderate-risk ETF with a low management expense ratio (MER) of 0.22%. Management fees won’t eat into your capital.

Most noteworthy, the XEI ETF pays monthly distributions that yield an attractive 4.9% annually. Given a distribution reinvestment program (DRIP) in place, the ETF presents a compelling investment vehicle for efficient dollar-cost averaging. Dollar-cost averaging is an investment strategy that seeks to consistently invest a fixed amount of capital each period, for several investment periods, and has improved investors’ fortunes over time while also instilling financial discipline in them.

The XEI ETF provides comprehensive exposure to various sectors of the Canadian economy, with strategic allocations primarily spread across energy at 31%, financials at 29.6%, utilities at 14.13%, and communications comprising 9.55% of the portfolio. The dividend ETF’s top holdings include respected Canadian dividend stocks like Canadian Natural Resources, Suncor Energyand TC Energyeach making up about 5% of the portfolio.