XDV:CC - The Rise of Dividend ETFs in Canada: A New Era of Investment?
2023-12-20 20:00:00 ET
Dividend stocks offer investors a low-cost way to create a passive income stream. For instance, you can buy a single share of a dividend-paying company and begin your passive income journey.
However, investing in dividend stocks can be quite tricky. First, these payouts are not guaranteed and can be suspended at any time, especially if company financials deteriorate. Second, you need to consistently identify companies that generate cash flows across market cycles, allowing them to raise dividends over time.
It’s pretty challenging to screen a handful of quality stocks while tracking and analyzing their financials and earnings reports each quarter. Alternatively, you can still own a diversified portfolio of dividend stocks with minimal work by investing in exchange-traded funds , or ETFs.
Typically, ETFs hold a basket of stocks across sectors, which helps you lower investment risk significantly. Similar to stocks, ETFs are also traded on an exchange and are ideal for those without the expertise to pick individual stocks.
There are several dividend-paying ETFs on the TSX that may offer investors a steady stream of income. Let’s take a look at three such ETFs that income-seeking investors can buy right now.
iShares S&P/TSX Composite High Dividend Index ETF
The iShares S&P/TSX Composite High Dividend Index ETF ( TSX:XEI ) is a fund that pays you a monthly dividend. With $1.5 billion in assets under management, the XEI ETF holds 75 stocks, offering you a dividend yield of 5.5%. It charges a management fee of 0.20% and an expense ratio of 0.22%, which is not too steep.
In the last five years, the ETF has returned 8.88% annually to shareholders, while annual returns are much lower at 6.10% if the investment horizon is widened to 10 years.
Some of the largest holdings of the ETF include giants such as Royal Bank of Canada , Toronto-Dominion Bank , Suncor Energy , Canadian Natural Resources , and TC Energy, which cumulatively account for 25% of the ETF.
iShares S&P/TSX Canadian Dividend Aristocrats Index ETF
Another popular dividend ETF in Canada is the iShares S&P/TSX Canadian Dividend Aristocrats Index ETF ( TSX:CDZ ), which holds 90 stocks. Each of these companies has grown dividends annually in the last five years, making it ideal for those looking to create a growing dividend base.
With $950 million in assets under management, the CDZ offers you a forward yield of 4.2%. Moreover, it has returned 6% annually in the last 10 years and close to 8% since 2018. The ETF has a management fee of 0.66% and an expense ratio of 0.66% which is much higher compared to XEI.
The top three holdings of the ETF include Aecon Group , Chartwell Residences , and Great West Lifeco. The ETF has a total of 90 stocks in its portfolio.
iShares Canadian Select Dividend Index ETF
The final ETF on my list is the iShares Canadian Select Dividend Index ETF ( TSX:XDV ). With a yield of over 5%, the ETF provides you access to 30 of the highest-yielding Canadian companies in the Dow Jones Canada Total Market Index .
The total assets under management for the ETF are over $1.6 billion, while its expense ratio and management fee stand at 0.55% and 0.50%, respectively.
This TSX ETF has returned 6.8% annually in the last five years.
The post The Rise of Dividend ETFs in Canada: A New Era of Investment? appeared first on The Motley Fool Canada .
Fool contributor Aditya Raghunath 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 .
2023