Starting Your Passive Income Machine (For Beginners)

Passive Income Machine

While I find it enjoyable to jump head-first into financial metrics; analyzing 52-week range lows and highs, price-to-earnings or price-to-FFO values, dividend yields and growth rates, payout ratios and earnings-per-share – this is not for everyone.

Investing Made Easy

Some people don’t want to pick stocks; I hear people often say “I don’t know the first thing about investing. I’m afraid to lose money. I don’t trust the stock market“, and the list goes on. And for those people, picking stocks is likely not a good idea. This person may choose a quick pick, following the herd without performing their own due diligence, losing (hopefully only) some hundreds of dollars, and then swearing off the market for good. This is terrible because while you can lose money picking hot stocks, or even on good picks, the overall trend of the market is upwards over an extended period of time.

The best thing you can do as a young person (or even an old person) is to start investing as soon as you’re humanly able to. The power of compounding will be on your side and over time, you’ll have a fortune amassing itself as you sit back and live your daily life; all you have to do is put some money aside every month, or every three or four months – whenever you can! Obviously the more often, the better, both to add to your portfolio and to dollar cost average your purchases (so you buy more when markets are down and buy less when markets are up). If you don’t realize just how incredible compounding is, you can see this 20+ year plan to build a passive income machine.

For those who

  • don’t have the time to dedicate to analyzing and picking stocks
  • are afraid to lose all their money in the stock market
  • want to start building a passive income machine of their own
  • want to get paid every month¬†without lifting a finger

you can kick-start your investing careers by investing in a dividend growth ETF (exchange-traded fund).

Investing In A Portfolio of Canadian Dividend Aristocrats

An ETF is just a passively managed portfolio comprised of multiple stocks that usually follow a theme or objective. In this case the objective would be to invest in companies which regularly increase their dividends.

A popular option for Canadian investors is the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF, which has the ticker CDZ.

They list their investment objective as:

“Seeks to replicate the S&P/TSX Canadian Dividend Aristocrats Index, less fees and expenses.

The S&P/TSX Canadian Dividend Aristocrats Index consists of companies that have increased dividends every year for at least five years.

Now if you were to purchase shares of this ETF through your brokerage, which you can set up with your bank, you wouldn’t have to do another thing! From then on you can just sit back, and purchase more shares when you’ve saved up enough money so that paying any brokerage commissions isn’t a big deal. For some who pay brokerage fees which can cost up to $10, investing a larger amount means commissions eat up a smaller percent of your investment. Still, never invest more than you could safely lose.

The CDZ fund consists of 94 different holdings (as of end of Feb 2022), meaning by purchasing one share of this fund you are essentially buying a stake in 94 different companies. This greatly reduces your risk of losing a large portion of your money. Even if one of these companies go bankrupt, you will not lose nearly all your money. This is one good reason why ETFs are far safer than individual stock picks.

And, by being invested in 94 different companies, you are well diversified. Below is the current sector diversification for CDZ:

So your stock picking is all handled, and your asset allocation is also taken care of.

Watch The Money Roll In

This ETF also pays dividends every month, which is something that can be enticing about certain stocks. When you’re getting payments coming to you every month it enforces the good habit of investing, since the more you invest, the more you’ll see coming into your accounts every month, which will compound monthly. The benefits of monthly dividends is probably more about the psychology of investing than about total returns, though.

CDZ has an MER (management expense ratio) of 0.66%, which is a commission they keep for managing your portfolio. While this may upset you, the mutual funds the banks will sell to you will have MERs of 1% to 2% at least. So you’re getting a deal by purchasing ETFs instead of mutual funds. In fact, mutual funds are generally not-so-good investments and will cost you A LOT of money in the long run in comparison to ETFs, in terms of fees.

CDZ has a dividend yield of 3.35% as of today (this will fluctuate with the price of a share, as it’s relative), and has paid a yield of 3.09% in the past 12 months. That means that if you had been invested in CDZ over the last 12 months, you would have seen 3.09% of that money come right back to you, for each month over 12 months, without having lifted a finger. This definitely creams the measly 1% interest you’d get from your savings account with your bank.

One important thing to consider though, is that while an investment today will return 3.35% in dividends, 0.66% of that will be subtracted from the share price as the management fee is taken.

Put It In Perspective

Now let’s image we’ve invested $5, 000 into CDZ just to put things into perspective. With the share price at $33.33, we would have purchased 150 shares… if we are operating through a no-commission brokerage. So now we’re proud owners of 150 shares of CDZ, a portfolio consisting of Canadian Dividend Aristocrats, who’ve raised their dividends for the past five years straight. These are companies that appreciate and reward shareholders.

On a yearly basis, going forward with the current 3.35% dividend yield, you’d be receiving $167.50. So every month, by having stored your $5,000 into this fund, you’d be receiving $13.96 a month. You might be saying “That’s not a lot”, but neither is $5,000 for a full retirement. If you consistently reinvest these dividends and put away a little something every month, you’ll see this money grow exponentially, compounded monthly.

You can enroll in a DRIP (dividend reinvestment plan) program, which basically means all of the dividends which you’d receive (in this case $13.96) will automatically be reinvested into purchasing more shares, and you don’t have to pay a commission for this. This can be a good option if you don’t plan on purchasing frequently and if you don’t plan on purchasing other stocks with these dividends. This way, every two months or so, you’d have another share of CDZ, and you’ll get another dividend payment.

While this wasn’t my traditional post for the more experienced dividend growth investors who know what they’re doing already and pick their own stocks, I hope this helps at least one person in understanding a little bit about starting their passive dividend income machine. The hard part is starting, once you own those first couple of shares, you’ll probably find a passion for investing and want to learn even more – and as they say, knowledge is power, and in investing – knowledge is also money.

13 Replies to “Starting Your Passive Income Machine (For Beginners)”

  1. Hi DB,
    It’s kind of funny that I was looking for an ETF that would do just that before starting to read your post! I am in Toronto right now for business and the atmosphere that you have in Canada among people is simply great! Also the economy seems rather stable, and that got me thinking, as I cannot buy Canadian securities directly I might try to get them with the ETF that you mentioned here… Let’s see if the banks will offer it (it’s not in the standard offer unfortunately), it would be a very good tool to diversify. Don’t like the fact that I cannot pick an individual stock but…

    CIao ciao


    1. Hey there Stalflare,

      Why can’t you pick individual stocks? If you can purchase this fund on the TSE you should be able to pick any other stock. The commissions might destroy you though if you have to call to purchase on the TSE.

      Best regards

  2. Thanks for sharing DB. Thanks for trying to help others out there. I’m definitely on board with ETF’s and I’m heading more that direction. It’s nice to hold a fund which contains a basket of stocks. Makes life simple and simple life is nice.
    Keep hustling hard and cheers to us my friend. Take care.

    1. Hi DH,

      I’m with you there on looking towards ETF a bit more lately. I’ve been working pretty hard the past couple of months looking at stocks and all and ETFs really simplify things. Not to mention they reduce risk.

      Take it easy man.

  3. Clearly, many have a fear of investing in the stock market for whatever reason. I think articles like this can educate investing novices and make them feel more comfortable about buying their first stock or fund. Thanks for sharing.

  4. A dividend paying stock ETF though a company like Vanguard is an excellent way for the average person to get started. It’s one of those “set and forget” type things.

  5. Hey, its great to read your articles I’m currently 18 years old and have become really interested in wealth building. Ive read Rich Dad Poor Dad and a lot of other financial education books and its good to know that others around my age are looking to do the same thing I am. I am into stocks as well I just started a portfolio on Motif and am really hoping to grow several forms of income by the time I am 19. Is there any advice you could give me? Im currently a freshman in college.

    1. Hey Josh,

      That’s great man. I wish I discovered all of this at 18, which is funny because everyone tells me they wish they discovered this at 22. Rich Dad Poor Dad can really change your frame of mind. For advice… well, this all may seem intuitive but read as much as you can. Read finance books and finance blogs, it was actually another DGIer blog that got me into the entire process of DGI and I’ve come very far in one year, which I’m sure you will as well. Try to improve yourself by at least 1% every day, don’t compare yourself to others but just who you were yesterday. Make a list of all the passive income ideas you have and work at them one by one, don’t try to bite off too much at once or you’ll become discouraged. Most importantly, track every single thing you can. This information is vital and will really propel you forward. Trust me. Keep hustling bro.


  6. One will definitely be in a win-win situation with dividends investment. But be sure to learn about it first. Make a research and read blogs like this one.

  7. Thanks for this informative blog post – I just came around via my research. It’s important having high-dividend stocks in any portfolio especially for beginners to get the idea of passive incomes. Your posts are helpful – I’m happy to be on the investment path since some years, too. Happy to benefit of any exchanges not only on swiss stocks which I’m invested in.

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