A dividend ETF tracks an index consisting of dividend paying stocks. Different ETFs apply different dividend strategies. For instance, a few funds select stocks based on their dividend yields, while some select based on market capitalizations or locations.
Investors especially those approaching retirement prefer investing in dividend ETFs as they provide for a regular stream of income, add diversification, minimize risk, and hedge against inflation. ETFs offer an easy way for investors to manage their portfolios as they track an index.
The number of Canadian dividend ETFs has been growing over the years. BlackRock Canada is one of the biggest portfolio managers in the country and manages some of the leading funds in the country.
Navigating the dividend ETFs does depend on what you are looking for. If you are strictly looking at income versus appreciation, your approach may be different.Care should be taken while choosing an ETF based on its style, past performance, sector diversification and fees.
Though past performance is indicative and does not guarantee future returns for sure, it is good practise to select funds having a decent established history. You could also go for funds having a low management fee and a good amount of diversification. A good ETF investment will not only save time on researching individual stocks but also provide far better diversification.
Here is a quick summary but you can find the details below; the best performers have the largest exposure to financials. Its no surprise myportfolio has the largest exposure to financials.
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Due to the nature of the Canadian stock markets, all Canadian Dividend ETFs have a high weightage of Financial and Energy sectors. The other prominent sectors are Industrials and Utilities. Most of these dividend ETFs also invest in the Communications, Real estate and Basic Materials stocks to round up the ETFs.
The performance and cost details for each dividend ETF is outlined below for better comparative analysis. Keep on reading for more details on each dividend ETF. Do note that the yield is not consistent across payments like many individual stocks, it can fluctuates based on the management of the ETF.
TheS&P/TSX Canadian Dividend AristocratsIndex FundTSE:CDZseeks to replicate the S&P/TSX Canadian Dividend Aristocrats Index, which screens for large Canadian companies who have increased their dividends at least five consecutive years. The fund is managed by BlackRock Asset Management Canada Limited, and provides an exposure to a portfolio of high quality, dividend paying Canadian companies operating across diversified sectors. CDZ allows investors to earn a regular monthly dividend income.
iShares Core S&P/TSX Composite High Dividend Index ETFTSE:XEIseeks to replicate the performance of the S&P/TSX Composite High Dividend Index. This fund is also managed by BlackRock Asset Management Canada Limited, and aims at long-term capital growth by investing in Canadian companies operating across diversified sectors. XEI pays a monthly dividend income.
iShares S&P/TSX 60 Index ETFTSE:XIUseeks to replicate the performance of the S&P/TSX 60 Index. The fund is launched and managed by BlackRock Asset Management Canada Limited, and aims at long-term capital growth. It is the largest and most liquid ETF in Canada and the first ETF (to begin trading) in the world.
iShares Canadian Select Dividend Index ETFTSE:XDVseeks to replicate the performance of the Dow Jones Canada Select Dividend Index. The fund is another dividend ETF managed by BlackRock Asset Management Canada Limited. It aims to provide long-term capital growth by investing in 30 high yielding Canadian companies in the Dow Jones Canada Total Market Index. Canadian Select Dividend Index ETF offers a large exposure to the financial sector with more than 50% weightage. It offers regular monthly dividend income to unitholders.
FTSE Canadian High Dividend Yield Index ETFTSE:VDYtracks the performance of the FTSE Canada High Dividend Yield Index, which consists of Canadian stocks having a high dividend yield. The ETF has a large part of its holdings coming from the financials and energy sectors with over 60% and 20% weightage, respectively. All the top ten holdings of the fund comprises of financials and energy stocks.
BMO Canadian Dividend ETFTSE:ZDVseeks to provide unitholders an exposure to the performance of a Canadian dividend paying stock portfolio based on dividend yields. Stocks showing long-term growth are chosen considering their dividend growth, yield, and payout ratio. It offers monthly distributions. The fund is more balanced with none of the stocks constituting more than 5% of the net asset value. BMO Canadian Dividend ETF has stocks from financials, energy, communication and utilities sectors amongst its top six holdings.
iShares Core MSCI Canadian Quality Dividend Index ETFTSE:XDIVreplicates the performance of the MSCI Canada High Dividend Yield 10% Security Capped Index. The fund selects securities with a high quality balance sheet and which have shown consistent earnings in the past. The ETF stocks are characterized by above average dividend yields and growing dividends.
Invesco Canadian Dividend Index ETFTSE:PDCseeks to replicate the performance of the NASDAQ Select Canadian Dividend Index. Most Canadian companies in the portfolio are liquid with high yields and have a sound track record of growing dividends. The fund has a 95% exposure to Canada with the rest 5% being contributed by other countries.
First Asset Morningstar Canada Dividend Target 30 Index ETFTSE:DXMtracks the performance of the Morningstar Canada Target Dividend Index. The fund is designed to provide a diversified exposure to Canadian dividend paying companies. First Asset Morningstar Canada Dividend Target 30 Index ETF is ideal for investors looking for regular quarterly cash flows and who can tolerate medium risk.
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DISCLOSURE: Please note that I may have a position in one or many of the holdings listed. For a complete list of my holdings, please see myDividend Portfolio.
DISCLAIMER: Please note that this blog post represents my opinion and not an advice/recommendation. I am not a financial adviser, I am not qualified to give financial advice. Before you buy any stocks/funds consult with a qualified financial planner. Make your investment decisions at your own risk see myfull disclaimerfor more details.
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