Recently I have had an inquiry as to whether I look at Canadian stocks or if it’s just majorly U.S. stocks. I do look at both; it’s just that most of my stock review articles have been stocks traded on U.S. exchanges. But this has influenced me to look at Canadian dividend ETFs today.
You might be wondering, what is an ETF? Well, an ETF definition I have always stuck to was to consider than an ETF is comprised of a bunch of different stocks. So instead of buying several individual stocks, you can own a portion of one share in multiple companies with an ETF.
There is a vast array of ETFs to purchase from, some popular ones being the Vanguard ETF S&P 500 or gold ETFs, among others.
So today, instead of looking at 4 dividend stocks, I wanted to look at 4 dividend ETFs that are Canadian based, so let’s take a look.
iShares S&P/TSX Composite High Dividend Index ETF:
According to BlackRock, this iShares S&P/TSX Composite High Dividend Index ETF (ticker: XEI) is designed to provide growth over the long-term, which could be a nice added fund to your portfolio. Since its inception, it’s had a 3.39% yearly growth, which is okay. Indeed, you could find better growth investments.
This ETF currently has 75 holdings, with the most extensive holdings being RBC, Nutrien Ltd., and TELUS. The largest industry holding for this fund is the financial industry, representing roughly 30% of the fund. Next is the energy industry at 28%, Utilities at 14.62%, and 11.73% for Communication.
Ideally, if you are very high on the energy and financial industry, then ideally, this will likely appeal to you. My only concern with the ETF is the high holdings in those two industries. If there is a down year, especially this year due to COVID-19, for those industries, then the distributions/dividends will be much smaller in comparison to any other time. Of course, that’s the price to pay to hold this fund.
The management expense ratio (MER) is 0.22%, which not the worst.
Lastly, this ETF pays a monthly dividend, usually at an average of $0.08/fund. If I do the calculation here, at a current price of $17.64, the MER will equate to $0.04. Of course, the yearly dividend would be $0.96, so if you subtract the MER, you will earn $0.92 a year.
iShares Canadian Select Dividend Index ETF:
Next, this Canadian dividend ETF (ticker: XDV) only has 30 holdings, which signifies it as the ETF with the second-lowest holdings amongst these four. So, there is undoubtedly more risk that this investment would decrease overall due to the lack of diversification the rest of the ETFs have. But this is another investment from BlackRock that focuses on long-term growth, with an average yearly increase of 4.70% since inception.
CIBC, Canadian Tire, and BMO are the most extensive holdings compromised in this ETF and the financial sector compromises of roughly 58%. 11.59% of the holding is compromised in the utility industry and another 10.27% in the communication industry. These holdings have me slightly worried due to that large holding in the financial sector. If the assets in the financial sector decrease, expect a massive reduction in your investment.
XDV is also a fund that pays a monthly dividend, which averages around $0.09 per month. Slightly a larger dividend than the ETF mentioned above, but this does carry a more extensive MER, at 0.55%. With my quick math, at a stock price of $22.01, it would be a yearly expense of $0.12. With the annual dividend being $1.08, one could potentially earn $0.96 yearly.
BMO Canadian Dividend ETF
In my mini ZDV ETF review, I found that its 51 holdings include Sun Life Financial Inc., Power Corporation of Canada, and CIBC. ZDV has a majority of its holdings in the financial sector at 34.64%, followed by utilities at 17.72% and energy at 13.32%.
As for an annual dividend, it pays out a dividend of $0.78. However, like the rest of these funds, the dividends are also paid out monthly. Although this is a low dividend compared to the others, it does carry a 0.38% MER. Again, with a calculation, you would earn $0.72 annually, at a stock price of $15.26.
So, why would you hold this when it pays a lower dividend compared to the other fund? Well, it’s primarily based on the price. Yes, the dividend isn’t as lovely as the others, but you would have the availability to purchase more funds at a lower price. As a result of buying more funds at this price than the others, you might earn more dividends.
Also, this fund’s price has increased by 4.55% annually since its inception. Although past performance is not an accurate representation of what happens in the future, it does show a considerable sign that this is somewhat stable.
iShares Core MSCI Canadian Quality Dividend Index ETF:
XDIV being the last fund covered in this article, its annual price growth since its inception is notably the lowest. It is 1.50%. This low growth can be attributable to the insufficient number of holdings the fund contains. That number is 20. Therefore, this fund might indicate there is a higher risk to this fund compared to others.
The industry exposures are broken down as follows: 55.72% is in the finance sector, 17.39% in the utility sector, 16.49% in the energy sector, 9.79% in the communication sector, and 0.61% in cash. With such a high exposure to one industry, you can see the picture of what can happen. As a whole, the finance sector goes down; you can expect the price and possibly even dividend payments to go down the cliff with it as well.
Speaking of dividends, like the others, this pays out a monthly dividend of around $0.08/fund every month. So, it’s on par with the rest but offers a very low MER at 0.11%. With yet one last calculation, this would earn you $0.94 yearly, of course, without considering any other costs, which goes for the rest of the estimates in this article.
None of these Canadian dividend ETFs will pay you significant amounts of cash flow per just one fund. It is always possible you can find a better dividend stock that might pay a higher yearly dividend, but there is no denying that a monthly payout is attractive.
These dividend ETFs are intended to provide income for your portfolio for compound reinvesting or to buy something. If penny candies were still such a thing, I could suggest every month you can purchase some, because you can’t purchase much at $0.08 a month.
What you’ll notice as well is that most of these funds earn around the same dividend monthly and, after netting against MER, will practically earn you the same. In this case, it might come down to what fund you can purchase with the lowest price, which would be ZDV stock. As always, it depends on your investment style.
Overall, these ETFs are some of the high dividend ETFs you will find on the Canadian markets and can be a great addition to one’s portfolio. Although I will admit, XDIV does provide the highest amount of exposure, which would concern me if I were to have a conservative investing strategy. Maybe you would dismiss that and state that it’s only designed to provide some income to reinvest and that one should not worry about the fluctuation in the price, which is acceptable.
All of the information I used to research these Canadian dividend ETFs are found by clicking throughout the article. Still, primarily I used Yahoo Finance, MarketBeat, BlackRock, and Morningstar as my primary sources of information. All of the prices were taken around October 21-22, so be wary the prices may have changed.
I know I was very limited in detail for this review, but I wanted to provide a smaller article today rather than a longer one that usually happens when I write a stock review. Maybe I will do a part two to this article at a later time.
Disclaimer: I am not a financial advisor. You are trading at your own risk and should consult a financial advisor for any investment decisions. Do your own due diligence when considering investing, and this information is for education/informational purposes only.