Want Decades of Passive Income? Buy This Index Fund and Hold it Forever

Vanguard’s FTSE Canadian High Yield Dividend ETF (TSX:VDY) provides a lot of passive income.

| More on:
woman analyze data

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s premium investing services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Do you want to earn decades of passive income without having to research stocks or constantly check your portfolio to make sure something isn’t wrong?

If so, it pays to invest in high-yield exchange-traded funds (ETFs). High-yield ETFs can provide you with all the yield you’d get with an individual high yield stock, but with considerably less risk. ETFs invest in diverse portfolios of stocks, which lowers your risk by “putting your eggs in multiple baskets.” The end result can be a very high portfolio yield with much less risk than you’d face by investing in individual “hot” stocks.

In this article, I will explore one high yield ETF that could add considerable passive income to your portfolio each and every month!

Vanguard’s high yield Canada ETF

Vanguard FTSE Canadian High Yield Dividend ETF (TSX:VDY) is a Canadian ETF that invests in high yield stocks. The fund pays a $0.16 distribution each month, or $1.92 per year. At today’s unit price of $48.64, VDY’s dividends provide an approximately 3.95% yield — far higher than the TSX Composite Index. And, with VDY’s monthly payout schedule, you get a little bit of passive income coming in each and every month.

Created with Highcharts 11.4.3Vanguard Ftse Canadian High Dividend Yield Index ETF PriceZoom1M3M6MYTD1Y5Y10YALLwww.fool.ca

High yield

Thanks to VDY’s high dividend yield, it’s possible to get a considerable amount of passive income from it. If you invest $100,000 in it, you get about $3,947 per year, or $329 per month, as the table below shows.

COMPANYRECENT PRICENUMBER OF SHARESDIVIDENDTOTAL PAYOUTFREQUENCY
VDY ETF$48.642,056 units costing $100,000.$0.16 per month ($1.92 per year).$329 per month ($3,949 per year).Monthly
VDY passive income math.

As you can see, you can get a significant amount of monthly income by investing in VDY. And if you hold your shares in a Tax-Free Savings Account (TFSA), the amounts are completely tax-free.

Quality holdings

Of course, you shouldn’t run out and invest all of your money in VDY just because it has a high advertised yield. As always, it’s the quality of the holdings that’s most important, as that factor determines both the total return (before fees) and the sustainable amount of dividend income.

Thankfully, VDY’s holdings do appear to be of some quality. The fund mostly consists of stable, blue-chip TSX stocks. It isn’t investing in questionable penny stocks in order to achieve its yield. That means that the fund’s holdings are fairly safe. Also, the fund holds 54 stocks, so the diversification provides some risk reduction as well.

Reasonable expenses

A final factor that VDY has going for it is reasonable expenses. The fund’s management expense ratio is 0.22%, which means that the management fee and all other expenses combined are only 0.22% of the price of admission each year. That’s a very low fee for a “themed” ETF focused on a specific type of stock.

Foolish takeaway

Taking everything into account, VDY looks to be a good vehicle for Canadian investors to get some extra yield in their portfolios. Cheap, highly diversified and high quality, it has the characteristics of a quality fund.

Should you invest $1,000 in Air Canada right now?

Before you buy stock in Air Canada, consider this:

The Motley Fool Stock Advisor Canada analyst team just identified what they believe are the Top Stocks for 2025 and Beyond for investors to buy now… and Air Canada wasn’t one of them. The Top Stocks that made the cut could potentially produce monster returns in the coming years.

Consider MercadoLibre, which we first recommended on January 8, 2014 ... if you invested $1,000 in the “eBay of Latin America” at the time of our recommendation, you’d have $21,058.57!*

Stock Advisor Canada provides investors with an easy-to-follow blueprint for success, including guidance on building a portfolio, regular updates from analysts, and two new stock picks each month – one from Canada and one from the U.S. The Stock Advisor Canada service has outperformed the return of S&P/TSX Composite Index by 38 percentage points since 2013*.

See the Top Stocks * Returns as of 2/20/25

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Andrew Button 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.

Confidently Navigate Market Volatility: Claim Your Free Report!

Feeling uneasy about the ups and downs of the stock market lately? You’re not alone. At The Motley Fool Canada, we get it — and we’re here to help. We’ve crafted an essential guide designed to help you through these uncertain times: "5-Step Checklist: How to Prepare Your Portfolio for Volatility."

Don't miss out on this opportunity for peace of mind. Just click below to learn how to receive your complimentary report today!

Get Our Free Report Today

More on Dividend Stocks

Caution, careful
Dividend Stocks

Sell-Off Alert: Why These TSX Blue-Chip Stocks Look Undervalued Now

These TSX stocks look mighty valuable right now, and come with outlooks that make each prime for the picking.

Read more »

dividends can compound over time
Dividend Stocks

Want a 6% Yield? 3 TSX Stocks to Buy Today

These TSX stocks offer yield of over 6% and are well-positioned to sustain their payouts and maintain consistent dividend payments.

Read more »

clock time
Dividend Stocks

10 Years From Now, You’ll Be Glad You Bought These Magnificent TSX Dividend Stocks 

A decade from now, these 2 dividend stocks could give you strong returns through dividends or capital appreciation, or both.

Read more »

Silver coins fall into a piggy bank.
Dividend Stocks

TFSA: 3 Top-Tier TSX Stocks for That $7,000 Contribution

The market is full of great long-term stock to fuel your TFSA. Here’s a look at three top-tier TSX stocks…

Read more »

A plant grows from coins.
Dividend Stocks

3 Top Growth Stocks to Buy for March

These three growth stocks might be excellent holdings to add to your self-directed portfolio this month.

Read more »

dividends can compound over time
Dividend Stocks

Sell-Off Opportunity: Why This Beaten-Down Canadian Stock Could Rebound

Nutrien stock might be down now, but long-term investors will certainly reap some major rewards.

Read more »

man in suit looks at a computer with an anxious expression
Dividend Stocks

U.S. Stock Market Correction: Here’s Where We Stand

U.S. stocks are pricey. Canadian stocks like Alimentation Couche-Tard Inc (TSX:ATD) are less pricey.

Read more »

A red umbrella stands higher than a crowd of black umbrellas.
Dividend Stocks

Market Correction Coming? These 2 Defensive Stocks Can Protect Your Portfolio

When it comes to essential defensive stocks, these two take the top spots.

Read more »