Below is a blueprint that shows exactly how that can be done – and how surprisingly far $40,000 can go when deployed with purpose.
Passively investing in dividend ETFs
For investors who want to keep it simple, the Vanguard FTSE Canadian High Dividend Yield Index ETF (TSX:VDY) can be an easy base. VDY focuses on established Canadian companies that pay above-average dividends. That naturally leads to heavy exposure to the financial and energy sectors – sectors that dominate the Toronto Stock Exchange’s dividend universe.
Top positions include:
- Royal Bank of Canada: 15.2% of the fund
- Toronto Dominion Bank: 10.3%
- Enbridge: 7.4%
- Bank of Montreal: 6.5%
- Bank of Nova Scotia: 6%
- Canadian Imperial Bank of Commerce: 5.7%
At recent prices, VDY yields about 3.4%, meaning a $40,000 investment returns about $1,348 per year, paid monthly. That’s a solid start for a hands-off income.
| ETF | Recent price | Number of units | Distribution | Total annual payout | Frequency | Total investment |
| WHY | $60.46 | 661 | $0.17 | $1,348.44 | Monthly | $39,964.06 |
Although VDY has a good core position, it is highly concentrated: approximately 56% in financial services and 27% in energy. That leaves gaps for investors who want higher returns, stronger dividend growth or sector diversification.
That’s where a carefully constructed portfolio of individual dividend stocks can boost the income stream.
Ensure higher yields and growth
To build a more robust income portfolio, dividend stocks must meet three basic criteria:
- Sustainable payouts
- Attractive yields
- Reasonable valuations
The following three Canadian names check all these boxes. An equal weighting of about $13,300 to each results in a blended return of almost 4.6%, noticeably higher than VDY’s return.
| Company | Recent price | Number of shares | Dividend | Total annual payout | Frequency | Total investment |
| SLF | $80.70 | 165 | $0.92 | $607.20 | Quarterly | $13,315.50 |
| BEEP.ONE | $50.76 | 263 | About $0.6025 | $633.83 | Quarterly | $13,349.88 |
| GSY | $129.02 | 103 | $1.46 | $601.52 | Quarterly | $13,289.06 |
| $1,840.14 | $39954.44 |
Sun Life: a sustainable dividend with steady growth
Sun life (TSX:SLF) is a global life and health insurer with a decade-long dividend growth streak, with an average attractive compound annual growth rate (CAGR) of 8.4%. The most recent increase – 8.6% – (over twelve months) is in line with the long-term trend.
At around $80 per share, the stock is trading roughly 11% below analyst consensus and near historical valuation norms. With a payout ratio of 66% and expected earnings growth, the yield of almost 4.6% seems well protected.
Brookfield Infrastructure Partners: Income Built to Last
Brookfield Infrastructure Partners (TSX:BIP.UN) is delivering a growing cash distribution in US dollars, giving Canadian investors potential currency tailwinds. The company owns key, long-lived assets – pipelines, toll roads, utilities, data centers, rail networks – with cash flows that are largely contracted and indexed to inflation.
At around $50.76 per unit, BIP.UN yields around 4.7%, supported by a healthy payout ratio of 60-70%.
goeasy: High growth combined with high yield
easy (TSX:GSY) has been hit hard lately, presenting an attractive buy-the-dip opportunity. Despite the volatility, the company has increased its dividend for ten years in a row, with an extraordinary CAGR of 30% over the past ten years.
With a yield of about $129, goeasy yields about 4.5%, well above the historical average return of 2.3% over the past decade. Its 36% payout ratio gives it a margin of safety, and the stock is currently trading at a 29% discount to its normal long-term price-to-earnings (P/E) ratio.
Investor tip: $40,000 can provide serious passive income
A $40,000 portfolio built with VDY offers simplicity, better diversification, and an annual income of about $1,350. The same amount invested in the three individual stocks above can earn approximately $1,840 annually – and more importantly, this income can grow over time.
When investing in dividend stocks, it’s important to look for sustainable payouts, good valuations (i.e. don’t pay too much for shares), and companies that reliably raise dividends.
Thus, a modest portfolio becomes a cash-flowing passive income machine.
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