In today’s markets, investing in a high-quality basket of stocks has never been easier. The popularity of exchange traded funds (ETFs) has made it so that even the most novice investor can reap the rewards of a bull market. You might also be surprised to know that there are plenty of Canadian Dividend ETF options for those seeking income on autopilot.
It is important to note however, that most of Canada’s Dividend ETFs are dominated by financials. This is not all that surprising as the financial industry accounts for 32.1% of the TSX Index.
The financials are further concentrated towards Canada’s Big Banks. Considering they have been paying uninterrupted dividends for over 100 years, including them as the backbone of a dividend ETF in Canada is probably a smart move.
It is important to make note of these weightings. If you decide to hold a basket of ETFs in an effort to diversify your holdings, it is important not to double up on ETFs that offer the same exposure to Canada’s Financial Services sector.
With that in mind, here are the top Canadian Dividend ETFs heading into 2020.
Horizons Active CDN Dividend ETF (TSX:HAL)
Top 10 Holdings
|1||Brookfield Infrastructure Partners||4.57%|
|2||Royal Bank of Canada||4.18%|
|3||Capital Power Corp||3.52%|
|4||Brookfield Asset Management Class A||3.29%|
|5||Summit Industrial REIT||3.25%|
|7||TC Energy Corp||3.20%|
As a smaller ETF, Horizons Active CDN Dividend ETF isn’t as well known as its larger peers.
It is an actively managed ETF that invests in North American dividend paying companies. Although it does have small exposure to Latin America stocks (4.52%), the majority (95.38%) of its holdings are TSX-listed companies.
It has net assets of $42.6 million and pays out a quarterly dividend that currently yields 2.85%. HAL has a moderate risk profile and MER fees of 0.67%.
Despite its small stature, it has been one of the best performing ETFs in the country and it has a rare five-star rating from Morningstar.
Since inception (2010), it has returned 9% annually. In 2019, the ETF is up 25%, outpacing the TSX Index (+18.77%).
Furthermore, the ETF has outpaced the Canadian Dividend Equity Index in the past one, three and five-year timeframes.
What is particularly attractive about HAL, is that it is one of the more diversified ETFs and one of the few in which financials do not dominate. The top-weighted sector is Utilities (19.12%) and Financial Services account for only 18.53% of holdings. Energy, Real Estate and Industrials all account for low-to-mid teens percentage points.
No stock accounts for more than 5% of holdings and the top 10 account for 34.81% of total net assets. HAL’s top holding is Brookfield Infrastructure Partners which should be familiar to Stocktrades Premium members.
All told, Horizons is an attractive Canadian dividend ETF for those looking for a well-balanced portfolio and one whose primary focus is not Financial Services.
BMO Canadian Dividend ETF (TSX:ZDV)
Top 10 Holdings
|2||National Bank of Canada||3.42%|
|3||Sun Life Financial||3.34%|
|4||Canadian Imperial Bank of Commerce||3.16%|
|5||Power Corporation of Canada||3.15%|
|6||Manulife Financial Corp||3.10%|
|7||Inter Pipeline Ltd||3.09%|
|8||Magna International Inc||2.92%|
|9||Bank of Nova Scotia||2.91%|
|10||Great-West Lifeco Inc||2.89%|
The BMO Canadian Dividend ETF seeks to provide exposure to the performance of a yield-weighted portfolio. It also targets companies that have the potential for long-term capital appreciation.
ZDV has net assets of $448.30 million and pays out an attractive monthly dividend that currently yields 4.40%. It is important to note that this BMO ETF is among the most volatile in the Canadian Dividend & Income Equity category. This makes sense since it is targeting higher-yield stocks.
ZDV’s holdings closely resemble that of the TSX Index weightings. Financial Services account for 35.46% which is almost double that of the Energy sector which accounts for 19.02% of the portfolio. Although Materials and Industrials account for 11.6% and 11.2% of the TSX Index, they only account for 2.44% and 6.85% of ZDV’s overall holdings. Making up for that shortfall is the Utility sector which accounts for 11.71% of holdings versus its 4.4% TSX Index weighting. All other industries are inline with TSX Index sector weightings.
Even though no single stock accounts for more than 4% of holdings, the top 10 is still largely dominated by financials (7 of the top 10). The largest holding is Enbridge (TSX:ENB) at 3.45% and the lone non-energy, non-financial stock is Magna International (TSX:MG) which accounts for 2.92% of holdings.
Somewhat surprisingly, all the Big Canadian Banks represented in the top 10 are the ‘smaller’ ones and a rarity from most of the ETFs. If the smaller Big Five banks are more appealing to you, than this just might be the perfect ETF.
S&P/TSX Canadian Dividend Aristocrats Index Fund (TSX:CDZ)
Top 10 Holdings
|2||Exchange Income Corp||3.24%|
|3||Alaris Royalty Corp||3.09%|
|4||Inter Pipeline Ltd||2.88%|
|6||Capital Power Corp||2.25%|
|7||Choice Properties REIT||2.19%|
|10||TC Energy Corp||2.09%|
Did you know, there is only one Canadian ETF that currently tracks Canada’s Dividend Aristocrats? In comparison, there are 10 funds south of the border that track the U.S. Aristocrats in some way. Aristocrats are stocks that have a history of raising their dividends for at least five consecutive years.
The fund seeks to replicate the investment of the S&P/TSX Canadian Dividend Aristocrats Index. To be included in the Index, stocks must have a market cap of at least $300 million. There are currently a whopping 82 stocks in the portfolio.
The fund has MER fees of 0.60% and pays out a monthly dividend that currently yield’s 4.02%. It has net assets of $868 million, which makes it one of the largest ETFs on our list. CDZ has a moderate risk profile.
In 2019, it has tracked the performance of the broader TSX Index (+19%) and it has outperformed the Canadian Dividend & Income equity category average over the past three, five and ten-year periods. Over the past 10 years it has averaged a compound annual return of 8.28%.
The Aristocrat fund is a well-balanced ETF with most sectors accounting for no more than 20% of holdings. The lone exception is Financial Services which is the top sector holding at 20.40%.
The Top 10 holdings are quite interesting and outside of the norm.
They account for only 25% of holdings and no stock accounts for more than 4% of holdings. TransAlta Renewables (TSX:RNW) is the top holding, following closely by Exchange Income Corp (TSX:EIF), neither of which make the top 10 in any of the other funds covered. Likewise, the top banking stock is Laurentian Bank of Canada (TSX:LB) which is also a rarity.
This ETF is a great option for investors looking for a wider variety of stocks, and those seeking to replicate the performance of the Canadian Dividend Aristocrats.
iShares Core S&P/TSX Composite High Dividend Index ETF (TSX:XEI)
Top 10 Holdings
|2||Canadian Imperial Bank of Commerce||5.25%|
|3||Manulife Financial Corp||5.15%|
|4||Bank of Montreal||5.11%|
|5||Bank of Nova Scotia||5.11%|
|6||TC Energy Corp||5.06%|
|7||Canadian Natural Resources||4.98%|
The iShares Core S&P/TSX Composite High Dividend Index ETF is geared towards high-yield seekers. It aims to replicate the S&P/TSX Composite High Dividend Index which is comprised of approximately 50-75 stocks that are selected based on yield. Each Index constituent is capped at 5% weight and no sector can account for more than 30% of holdings.
This high-yield ETF pays out its dividend monthly and at 0.22%, has one of the lowest MER fees. This is probably the fund’s most attractive feature. It has $629.3 million in assets and currently yields 4.74%. The fund has slightly underperformed the TSX Index in 2019 (+16.90% vs +18.77%) and has averaged 5.62% since inception in April of 2011.
Since the fund targets higher-yielding stocks, it naturally has a higher-than-average risk profile. Despite the Index weighting caps, the fund is currently overweight financials (31.02%) and Energy accounts for 30.05% of holdings. That means two sectors account for approximately 60% of total holdings. If you are looking for diversification, this is not the ETF for you.
Likewise, the portfolio is also heavily weighted towards the Top 10 which account for 50.43% of assets.
Despite the 5% Index cap, the are six stocks that currently account for more than 5% of holdings. Among the Top 10, you will see several of the largest blue-chip companies in Canada. From Enbridge (TSX:ENB) to BCE (TSX:BCE), to the Bank of Nova Scotia (TSX:BNS), the top 10 is a “who’s who” of the best blue chip stocks in Canada.
iShares Canadian Select Dividend Index ETF (TSX:XDV)
Top 10 Holdings
|1||Canadian Imperial Bank of Commerce||8.59%|
|2||Royal Bank of Canada||6.44%|
|3||Bank of Montreal||5.78%|
|4||Bank of Nova Scotia||5.57%|
|6||TC Energy Corp||5.08%|
|9||National Bank of Canada||4.40%|
iShare has another twist for those seeking a higher yield.
The iShares Canadian Select Dividend Index ETF seeks to replicate the performance of the 30 highest yielding, dividend-paying companies in the Dow Jones Canada Total Market Index.
Constituents are selected by Dow Jones using a rules-based methodology including an analysis of dividend growth, yield and average payout ratio.
The fund is the largest ETF on our list with net asset value of $1.4 billion. It has MER fees of 0.55%, pays a monthly dividend and currently yields 4.24%.
In 2019, the fund has essentially tracked the TSX Index (+18.73%) and outperformed its Canadian Dividend & Income Equity fund peers (+15.10%). In fact, it has outperformed its peers over the past one, three and ten-year timeframes.
Much like its high-yielding XEI peer, XDV has a higher-than-average risk profile. This is where the similarities end as XDV has no weighting caps and it shows. The Financial Services sector accounts for a whopping 61.69% of holdings! It is close to being a Financial Services pure-play.
The Communications Services (13%) and Utilities (10.14%) sectors make up the bulk of the remaining 40% with no other sector accounting for a double-digit weighting.
Likewise, the top 10 holdings account for 54.27% of the portfolio. The top holding, Canadian Imperial Bank of Commerce (TSX:CM) accounts for 8.59% of the portfolio. Seven of the top 10 holdings are banks and the collectively, the Big 5 banks account for 30.96% of the portfolio.
If you are looking for a highly concentrated ETF that is laser focused on the big banks, look no further.