Tuesday, February 27, 2018

Using ETFs for Dividend Investing - Should You?



Instead of buying individual stocks you may want to consider using Dividend ETFs to get started on your dividend stock investing journey. It's not a strategy I use but if you have a limited amount of funds to invest you can get started doing this.

Let's have a look at 3 of the most popular offerings and what they are composed of. This can be a great place to get ideas from if you want to put together a dividend growth portfolio by mimicking what professional money managers do.

VDY - Vanguard FTSE Canadian High Dividend Yield ETF

Top Ten Holdings which comprise 75% of the ETF include;

Royal Bank
TD Bank
Bank of Nova Scotia
Enbridge
Bank of Montreal
Canadian Imperial Bank of Commerce
Manulife
TransCanada Cop.
Sunlife
National Bank of Canada

MER: 0.22%
Dividend Yield: 4%
Total Number of stocks: 57
5 year avg. return = 5%

XDV - iShares Canadian Select Dividend Index ETF

Top Ten Holdings which equals 54% of the ETF;

CIBC
Royal Bank
Bank of Montreal
Bank of Nova Scotia
BCE
National Bank
TransCanada Corp
TD Bank
Laurentian Bank
IGM Financial

MER: 0.55%
Dividend Yield: 3.9%
Total Number of stocks: 28
5 year avg. return = 7.5%

CDZ - iShares S&P/TSX Canadian Dividend Aristocrats Index ETF


Top Holdings comprising 25% of the fund;

Corus Entertainment
Alaris Royalty
Exchange Income Fund
Altagas
Transalta Renewables
Gibson Energy
Gluskin Sheff
Interpipeline
Enbridge Income Fund
Granite Real Estate Investments

MER: 0.66%
Dividend Yield: 3.4%
Total Number of stocks: 81
5 year avg. return = 6%

All of these funds allow you to earn monthly dividend income. As you can see they are all a bit different as far as exposure to sectors so you have to decide if you want a heavier exposure to financials or not.

They also have different costs and costs in the long run matter. You pay that price to have someone else make the buying and selling decisions for you.

All of them invest in high quality Canadian dividend paying stocks. If you have the money, let's say 100K, you can always mimic the top 10 holdings of a particular ETF mentioned here and buy the stocks individually and just pay the trading costs to buy.

This is what I do. As an example I own all 10 of the top holdings in VDY but only hold 1 of the stocks in the top ten of CDZ.


Summary

I have built my own dividend growth portfolio and don't use ETFs. While the convenience is nice, I find the ongoing cost prohibitive. I only check them out to get ideas on what to buy when I get new money to invest.

Do you use ETFs in your own portfolio?


Related Posts: Buy For the Dividends
Recommended Reading : The Little Book of Big Dividends

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