The ups and downs of dividend stocks in the past couple of years make a great argument for getting your exposure to these companies through exchange-traded funds.
Dividend ETFs are diversified, which means you eliminate the risk of making big bets on duds like BCE Inc. You’d also have had some exposure to red-hot dividend-payers in the energy sector at the same time as utility and pipeline stocks were in the penalty box. These latter two sectors have come on strong lately – you’d have a taste of that if you owned a dividend ETF.
Returns and fees are an obvious differentiator between dividend ETFs, and so is yield. Some dividend ETFs are tuned to emphasize growth over income, while others dial up the dividend flow. For income-focused investors, here’s a look at six of the top-yielding dividend ETFs contained in the Morningstar Canada database:
- The iShares S&P/TSX Composite High Dividend Index ETF (XEI-T): A yield of 4.9 per cent and one- and three-year annualized total returns of 22.9 and 9.7 per cent, respectively. The management expense ratio is 0.22 per cent, which is reasonable in the dividend ETF niche.
- The iShares Canadian Select Dividend Index ETF (XDV-T): A 4.4-per-cent yield and one- and three-year returns of 27.6 and 7.2 per cent. The MER is a hefty 0.55 per cent, which costs you some yield.
- The Invesco Canadian Dividend Index ETF (PDC-T): A 4.3-per-cent yield and one- and three-year returns of 25.7 and 8.2 per cent. The MER is 0.56 per cent.
- The Vanguard FTSE Canadian High Dividend Yield Index ETF (VDY-T): Another 4.3-per-cent yield, with a one-year return of 27.4 per cent and a three-year return of 11.2 per cent. The MER is 0.22 per cent.
- The Fidelity Canadian High Dividend ETF (FCCD-T): A yield of 4.1 per cent, and one- and three-year returns of 23.7 per cent and 7.1 per cent.
- The BMO Canadian Dividend ETF (ZDV-T): A yield of 3.8 per cent, plus a one-year return of 26.3 per cent and a three-year return of 9.6 per cent. The MER is 0.39 per cent.
Two more things to consider in selecting dividend ETFs: How much growth has there been in distributions in recent years, and how payouts are structured. In non-registered accounts, you’ll want to know how much is actual dividends and how much is a return of capital.