A dividend ETF is like a faucet that pours out cash every month.
Exchange-traded funds holding dividend-paying stocks are a handy option for both income-seeking investors and people who want a portfolio of mainly blue-chip stocks. You get an instant portfolio of dividend-paying stocks managed for you at a much lower cost than anything in the mutual fund world. And, you get cash distributions paid every month.
In the fifth instalment of the 2017 Globe and Mail ETF Buyer's Guide, we look at funds in the dividend and monthly income categories. ETFs on this list were chosen because they have at least a three-year history and have achieved a certain following among investors as shown by trading volumes and asset size.
You'll find a mix here of funds that track an index, that use a screening process to build portfolios and that are actively run by a portfolio manager. Index trackers generally have the word "index" in their name and have the lowest fees. The monthly income funds hold a diversified mix of ETFs in such sectors as dividend-paying common shares, preferred shares and bonds. The overall MER for these income ETFs includes the underlying funds.
We'll close out the 2017 edition of the ETF Buyer's Guide by looking at U.S. and global dividend and income funds on May 20. The guide has already covered Canadian, U.S. and international/global equity funds, as well as bond ETFs.
Here are explanations of some of the terms you'll find in the guide.
Shown to give you a sense of how interested other investors are in a fund.
Management expense ratio (MER):
The MER is the main cost of owning an ETF on a continuing basis; published returns are shown on an after-fee basis.
Trading expense ratio (TER):
The TER is the cost of trading commissions racked up by the managers of an ETF as they make adjustments to the portfolio of investments; add the TER to the MER for a fuller picture of a fund's cost.
Supplied by Globeinvestor.com and based on the recent pattern of monthly payouts and the latest share price; may reflect payments of dividends, bond interest and return of capital; check the fund profiles on ETF issuer websites to find out what kinds of income have been contained in distributions in recent years.
Average daily trading volume:
Trading of fewer than 5,000 to 10,000 shares a day on average tells you an exchange-traded fund isn't generating much interest from investors or is still building a following. One small fund with lower volumes is included here because of consistently strong returns.
Top sector weightings:
Financial stocks dominate in dividend ETFs – be mindful of that if you own a lot of bank shares or have exposure to financials through holdings in preferred shares or corporate bonds.
ETF companies typically disclose total returns, or share-price change plus dividends or distributions.
One final note – some of the funds on this list contain U.S. stocks, which produce dividends that are not eligible for the dividend tax credit in non-registered accounts.
Click here to download an Excel version of this table
* ZCS = BMO Short Corporate Bond Index ETF; ZCM = BMO Mid Corporate Bond Index ETF; ZWH = BMO US High Dividend Covered Call ETF
** CBO = iShares 1-5 Year Laddered Corporate Bond Index ETF; CPD = iShares S&P/TSX Canadian Preferred Share Index ETF; CUD = iShares US Dividend Growers Index ETF.